Financial support for households should be extended into 2021, says Which?

Vital financial help for struggling households should be extended into 2021, Which? has urged.

The consumer group said the protections window currently in place to provide crucial support for those having difficulties making their usual payments due to the impact of coronavirus should be extended to January 31 2021.

It said the Financial Conduct Authority (FCA) should take further steps to protect households facing “a potentially disastrous financial cliff edge” when temporary relief measures such as payment holidays and interest-free overdrafts come to an end.

The ending of the furlough scheme in October could mean that some people potentially only start to experience financial difficulties later this year.

In July, the FCA made a “call for input”, asking for early views on what should happen to consumers coming to the end of a second three-month payment deferral under its temporary guidance for firms in light of the pandemic.

The regulator has also been seeking views on whether it should extend its current guidance beyond the current October deadline, or provide an alternative form of support.

If responses show that further guidance is needed, it is expected that the FCA will publish draft guidance on mortgages in late August and draft consumer credit guidance in September.

At present, people have until October 31 2020 to ask their lender for temporary support with borrowing such as mortgages, personal loans and credit cards.

Borrowers requesting payment deferrals will still accrue interest on the loan and need to pay it off eventually.

Meanwhile, the Coronavirus Job Retention Scheme is set to close on October 31 2020.

Which? said that, while payment holidays are not a long-term solution and it is in the best interests of consumers to repay where possible, there is likely to be an increase in the number of people falling into financial distress as a result of the furlough scheme ending, who will need to access this support.

It also said that lenders should offer wider forbearance options such as payment rescheduling or freezing interest when another deferral is not in the consumer’s best interest.

Which? added that normal credit reference agency reporting rules should not immediately be applied after the October 31 deadline has passed.

It said anyone who has already accessed a payment holiday due to the extraordinary circumstances created by the pandemic – or who accesses one between now and January 31 2021 – must not have their long-term creditworthiness negatively affected as a result.

The consumer group also wants to see timescales for complaints about forbearance reduced, as it said it has seen cases where slow handling of complaints has affected consumers’ finances.

Recent Which? research looked at the scale of the financial problems that many people are already facing, with furloughed workers three times more likely to have defaulted on at least one payment in the past month.

It said awareness of and accessibility to the temporary support is greatly needed to prevent consumers unnecessarily defaulting.

Gareth Shaw, head of money at Which?, said: “The regulator has acted quickly and effectively to help those struggling financially due to the pandemic, but it must be prepared to take further bold action to prevent millions of people from being hit by a perfect storm of financial pressures in the coming months.

“The huge number of payment holidays taken highlights the scale of financial difficulty people in this country are facing – a situation that is likely to become worse as support measures like the furlough scheme come to an end.

“The regulator must treat all consumers fairly – ensuring financial support is still provided to those who need it and also available for those who may face financial problems for the first time after October 31.”