Second payment holiday for consumer credit customers confirmed
The FCA announced back in April that lenders should offer a three-month payment freeze on credit cards and loans and offer interest-free overdrafts of up to £500 on current accounts to anyone struggling financially due to Covid-19.
Last month it proposed a further three-month payment break for those still struggling. It’s now confirmed the guidance will come into force on Friday (3 July).
The FCA says those customers who can afford to return to their regular repayments, or make partial payments, should do so.
But it also says that borrowers still facing payment difficulties as a result of Covid-19 should be offered a further three-month payment break, or reduced payments for three months.
Customers who already have an arranged overdraft on their current account can request up to £500 interest-free for a further three months.
Customers who haven’t yet had a payment freeze or arranged a £500 interest-free overdraft can request one up until 31 October 2020.
The FCA says that any payment freezes or partial payment freezes shouldn’t negatively impact consumers’ credit files.
Christopher Woolard, interim chief executive at the FCA, says: “Since the coronavirus crisis began, we have made support available for those borrowers financially affected by the pandemic. For those who are now in a position to restart payments, it will be in their best interests to do so. But for those who still need it, the package we are confirming today ensures there is help and further support.”
These latest proposals only apply to credit cards and other ‘retail revolving credit’ such as store cards and catalogue credit, personal loans and overdrafts.
They don’t apply to borrowing such as car finance, high-cost short-term credit, rent-to-own, pawnbroking and buy now, pay later. These will be covered by separate guidance which will be updated soon.
Think before taking a payment break
Claudia Nicholls, money spokesperson at MoneySupermarket, says: “The further measures of support confirmed this morning by the FCA for consumer credit customers are welcome. But it’s important to stress that all these measures are temporary and don’t solve the longer term challenges faced by many borrowers.
“Borrowers should think carefully before requesting further interest freezes or renegotiating their payment rates – in particular they should make sure that they have a clear understanding of the impact this will have on their interest payments down the line.”
Some borrowers struggling with products such as loans, overdrafts or credit cards might be able to consolidate or transfer debts to products with better interest rates.
The FCA also confirmed it will not extend temporary guidance it put in place in relation to overdraft costs.
In April, it asked banks and building societies to temporarily ensure all overdraft customers were no worse off on price when compared to the prices they were charged before the recent overdraft rule changes came into force.
So from Tuesday 14 July, banks that had previously raised their overdraft interest rates – many to 39.9% EAR/APR – will be able to begin charging those rates again.
However, the FCA says it will continue to monitor overdraft pricing.