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Loan and credit customers eligible for six-month payment break

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19/11/2020
Loan and credit customers will be limited to a total six months of payment holidays under the City regulator’s updated guidance for those struggling financially amid the coronavirus pandemic.

Earlier this month, the Financial Conduct Authority (FCA) proposed to extend payment holidays as well as other support for personal loan, credit card, motor finance, rent-to-own, buy-now-pay-later and pawnbroking customers who continue to experience payment difficulties due to coronavirus.

It has now confirmed updated measures which will come into force on 25 November, though firms are encouraged to provide the enhanced support sooner.

Essentially it caps the maximum payment holiday to six months.

The measures include:

  • Those who have not yet had a payment deferral will be eligible to apply for payment deferrals of up to six months in total
  • Those who currently have a payment deferral will be eligible to apply for a further deferral, as long as the total length of deferrals doesn’t exceed a maximum of six months in total
  • Those who have previously had a payment deferral of less than six months will also be eligible to apply for a further payment deferral, as long as the deferrals don’t exceed six months in total
  • Firms have the power to assess that a payment deferral is not in a customer’s interest. In this case, tailored support should be offered instead
  • Those who have already had six months of payment deferrals or who are in arrears or receiving tailored support, will not be automatically eligible for a further payment break. Instead, firms will provide tailored support appropriate to their circumstances. This may include the option to defer further payments.
  • High-cost short-term credit customers, such as those with payday loans, will be eligible for a payment deferral of one month.

Customers have until 31 March 2021 to apply for an initial or a further payment deferral.

After that date, they will be able to extend existing deferrals to 31 July 2021, provided these extensions cover consecutive payments, and subject to the maximum six months allowed.

If borrowers who have not yet taken a deferral think they need the full six months, they should apply in good time before their February 2021 payment.

A payment deferral will not be reported as a missed payments on a customer’s credit file, the FCA confirms.

However, this does not mean that their ability to access credit will be unaffected, as lenders may take into account a range of information when making lending decisions. Further, tailored support may be reported on credit files, and lenders should inform customers where this will be the case. This would include any further payment deferrals offered.

The FCA urged customers to keep up with payments on their loans or credit products if they can afford to do so, adding that requests for payment freezes should only be made where absolutely necessary.

Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “For those continuing to face payment difficulties as a result of coronavirus, these measures will ensure they continue to be able to access much needed support during this crisis. We also want to highlight that tailored support will still be offered and remains the most appropriate option for many borrowers.”

Consumers who are struggling with the cost of their overdrafts as a result of coronavirus will be able to request support which reflects their individual circumstances, such as reducing or waiving interest.

The FCA will continue to keep the support available to consumers under review.

A total of 1.16 million payment deferrals on credit cards have been granted to customers with over 64,000 still in place, and over 814,000 payment deferrals on personal loans have so far been granted with over 31,000 still in place.

Of those credit card and personal loan customers whose payment deferral has come to an end, analysis suggests that three-quarters have now returned to making repayments, according to UK Finance.

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