MAPS offers its response to FCA proposals for ongoing support to mortgage and credit borrowers affected by Covid

The FCA has suggested that mortgage and credit providers will need to continue to offer support to borrowers affected by coronavirus. The Money and Pensions Service has expressed concerns that the proposals don’t go far enough and has made a series of recommendations to the FCA.<

The Money and Pensions Service has issued its response to Financial Conduct Authority proposals that will force lenders to continue to offer financial support to borrowers affected by the coronavirus pandemic.

MAPS says it believes that the key issues affecting many borrowers will include:

  • Reduced income
  • Loss of employment
  • Levels of unpaid debt that they are not used to
  • Reduced access to traditional ‘remedial’ debt repair products, such as consolidation loans or no/low-cost balance transfer credit cards, possibly leading to an increased use of high cost credit

MAPS has made a series of recommendations to the FCA, and says that:

“The guiding principle that unites and underpins our recommendations is that the FCA should require firms to ensure wherever possible that consumers are no worse off than they would have been without the impact of the pandemic on their financial health.”

The MAPS recommendations include:

  • Customers who have not previously had a payment deferral, or who have only requested a deferral on one occasion, should be allowed an additional three-month period in which they can request a deferral – at present FCA policy is for the payment deferral application period to end on October 31.
  • At the end of the deferral scheme (on 31 October or any later date if the scheme is extended) lenders should be required to agree individual repayment plans with borrowers, offering reduced interest rates and waiving interest where necessary
  • If borrowers are unable to resume repayments, lenders should be required to consider extending payment deferrals or implementing other forbearance arrangements, and these arrangements may, in some cases, have to remain in place until the start of the Statutory Breathing Space Scheme on May 4
  • The forbearance requirements should be extended so lenders are required to offer cheaper alternative products to affected borrowers, where such suitable alternative products are available
  • Lenders should be pro-actively required to refer affected customers to sources of free and impartial advice and guidance
  • Firms should be urged to adopt the Money and Mental Health Policy Institute’s Urgent Covid-19 Customer Support Standards, in recognition of the fact that the pandemic has had a massive impact on the nation’s mental health
  • Where customers are particularly vulnerable, lenders may have to consider writing off Covid-related debts

A rigid cut-off date of October 31 for applying for a payment deferral is perhaps proving to be one of the most contentious points at the present time. MAPS agrees that it may not be appropriate to use a further deferral as a default solution for a borrower who has already had two three-month deferrals. However, MAPS suggests that many customers may either not have used deferral at all or have only used it for one three-month period during the period it has been available. It goes on to suggest that it may be appropriate to extend the deferral deadline to the end of January 2021, subject to a limit of six months deferral in total for each individual borrower, especially as redundancy rates are likely to spike when the furlough scheme comes to an end in October.