The Finance and Leasing Association has raised concerns about the new coronavirus payment deferral scheme proposed by the Financial Conduct Authority at the weekend.
The FCA's proposal came as Prime Minister Boris Johnson announced a new period of lockdown from November 5 to December 2.
"To support those financially affected by coronavirus, we will propose that consumer credit customers who have not yet had a payment deferral under our July guidance can request one. This could last for up to 6 months unless it is obviously not in the customer’s interests. Under our proposals borrowers who are currently benefitting from a first payment deferral under our July guidance would be able to apply for a second deferral," said the FCA.
Stephen Haddrill, director general of the FLA, said: “Lenders are committed to supporting customers in financial difficulty and it is vital that this support is provided in a way that best serves their borrowers’ interests.
“This is best achieved under existing FCA rules that require lenders to assess their customer’s position carefully. Giving borrowers the impression that a six-month deferral is always the right answer is dangerous. It could leave people with unsustainable debts that they may struggle to repay.
“The FCA should limit its guidance on payment deferrals to three months at this stage as it did in March, so that there can be a full review of the policy by the FCA, and of individual circumstances by lenders before any extension. Without this, some people will continue deferring payments and accruing debt to their extreme detriment.
“If HM Treasury and FCA press ahead with a deferrals policy until the end of March 2021 in spite of these risks, then furlough should also be extended well beyond one month to give more people a realistic chance of being able to better manage their repayments in the interim.”
Further announcements are expected from the FCA this week, and it said it would work with trade bodies to implement the new proposals.