Payment freezes on loans and credit cards for people struggling with debt, plus easier overdrafts, will begin on Thursday after an emergency package of “breathing space” measures was formally introduced by the Financial Conduct Authority.
From 14 April, the rules will extend to other forms of credit – such as store cards and catalogue credit – with the regulator promising to add support for car financing to its temporary measures next week.
The rules were first proposed last week – and have been adopted by many banks already – but after a brief consultation have now come into force across the sector.
• Personal loans and credit cards
Lenders will be expected to offer a temporary payment freeze for up to three months, for consumers impacted by coronavirus. Banks have also been told that they can’t suspend cards during this period.
If you have a personal loan, credit card, store card, catalogue credit, guarantor loan (such as Amigo), logbook loan or home collected credit (also known as doorstep lending) you can ask for a freeze on repayments for three months.
Payday loans are not yet covered by the rules and neither are cars bought on hire purchase or through a leasing deal. But the FCA said: “We are looking at these areas, and other specialist types of lending, and expect to announce specific proposals in due course.”
Peer-to-peer loans – such as those from Zopa and Ratesetter, do not come under the rules, although the FCA said it expects firms to help customers who are struggling. Business credit cards are also excluded from the rules.
As with mortgage payment holidays, these payment freezes are not free. Customers will still have to pay the accrued interest once the deferral period ends.
Anyone with an arranged overdraft can ask for up to £500 of overdraft borrowing with no interest for three months. If your current arranged overdraft is below £500, you will not pay any interest on the amount of your current overdraft limit. If you don’t have an overdraft, or your limit is smaller than £500, you can request a new overdraft or an increased limit, but this will be subject to normal checks on affordability.
• Credit records
Anyone using these measures shouldn’t have their credit record affected. The FCA said firms will be expected to “ensure consumers using any of these temporary payment freeze measures will not have their credit file affected”.
• When banks can refuse
The FCA has caveated its rules, saying there are situations where a lender can refuse a payment deferral. In its guidance, the FCA said: “A firm should grant the customer a payment deferral for three months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so.”
The FCA added that it “would obviously not be in customers’ interests if it would give [them] a greater overall debt burden compared to other solutions”. In these instances, the bank is expected to offer other ways to help the customer, such as reducing or waiving interest, or extending the term of the loan.
People with very high interest credit cards (usually those on the lowest incomes) who are suffering problems repaying may receive extra help. “Firms should review their prices to consider whether they are consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of coronavirus in order to ensure that they do not pose unjustifiable burdens on these customers who may be experiencing temporary payment difficulties,” said the FCA.
Customers who are struggling do not have to apply immediately – the FCA said they should be able to request a payment deferral at any point in the next three months.
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