In April, the Financial Conduct Authority (FCA) announced a package of measures to support credit customers struggling to meet payments in the unprecedented circumstances.

And today it has announced further proposals to ensure banks, building societies and regulated credit providers continue to offer help to those facing financial difficulty.

This can include a further three-month payment deferral or reduced payments on credit cards, store cards, catalogue credit, personal loans and overdrafts.

For customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, the time to apply would be extended until 31 October 2020.

However, the FCA confirms it is not extending its guidance ensuring that overdraft customers are no worse off on price when compared to the prices they were charged before recent overdraft rule changes.

This means they could pay up to 40% on the coronavirus debt in July onwards, unless they actively request a lower payment from their lender. The FCA stated: “Firms should ensure that these customers can, on request, access a preferential interest rate in respect of any borrowing that is not interest free.”

As repayment freezes and overdraft amounts above a £500 buffer will be subject to interest, “the proposals deliver a real kick in the teeth for borrowers”, according to Sarah Coles, personal finance analyst at Hargreaves Lansdown.

She said: “Banks will be able to ramp up overdraft charges to the sky-high levels they were planning before this all kicked off: suddenly you could be left paying around 40% interest on your Coronavirus debts. This feels like an awful time to be dropping this kind of burden on people.”

Coles added: “These loans and cards can come with hefty interest rates, so putting off repayments will build up the interest you’ll eventually have to pay, creating an even bigger debt mountain to climb when you’re back on your feet. There’s also the risk you’re not going to get back to financial fitness within three months – so you won’t be in any position to do any climbing at all.”

The credit proposals

The proposals include:

• At the end of a payment freeze, firms should contact customers to find out if they can resume payments. If so a plan on how the missed payments could be repaid should be agree. If customers can afford to return to regular repayment, they should do.
• For customers still facing temporary payment difficulties, firms should provide them with support by reducing payments on their credit card and personal loans to a level they can afford for three months.
• Allowing overdraft customers who already have an arranged overdraft on their main personal current account, to request up to £500 interest-free for a further three months, repayment plans as well as lower interest rates on borrowing above the interest-free buffer.
• Customers who have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 would be able to request one up until 31 October 2020.
• Payment freezes shouldn’t have a negative impact on credit files.

Christopher Woolard, interim chief executive at the FCA, said: “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency. The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus. Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”

The proposals are now subject to consultation until 22 June and the FCA said it expects to finalise the guidance shortly afterwards.

The guidance doesn’t apply to other consumer credit products, such as motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later schemes.