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Credit card holders can take advantage of repayment freezes in a similar vein to mortgage holiday rules. Under current plans, payment deferrals of this nature will be wound down come the end of October but the FCA announced additional support will be provided to customers beyond this.
The FCA detailed they expect firms to:
- Recognise the uncertainties and challenges that many customers will face in the coming months as the crisis develops, and provide tailored support which reflects their individual circumstances.
- Work with customers approaching the end of a payment deferral to provide support before they miss payments.
- Be flexible and employ a full range of shorter and longer-term options to support their customers and minimise stress and anxiety experienced by customers in financial difficulty.
- Give customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of time.
- Put in place sustainable repayment arrangements which are affordable and take account of their customers’ wider financial situation including their other debts and essential living expenses.
- Prevent customers’ balances from escalating once they have put in place a repayment arrangement by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen.
- Recognise and respond to the needs of vulnerable customers.
This will likely be welcomed for those who have credit card, personal loan or buy-now pay-later (BNPL) difficulties who are yet to overcome coronavirus themed setbacks.
On this, Justin Basini, the CEO and co-founder of ClearScore, commended the FCA’s efforts while providing advice to affected consumers: “The updated guidance from the FCA on payment holidays comes as a welcome relief to those who are still struggling to make repayments.
“It’s important that consumers make the minimum repayments on their debt wherever possible.
“The reduction of interest, fees and charges for those who have agreed repayment terms with lenders is a massive step in helping people pay off debt, which has been accruing interest even while payments themselves were frozen.
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“Anyone struggling with repayments should speak to their provider first, rather than miss a payment. “Missing just one month of repayments on your credit card could cause your credit score (how lenders judge your financial suitability) to drop by 21 points.”
However, despite the unquestionable positive around this announcement, Justin went on to warn there may be costly repercussions down the line: “The drawback to this FCA guidance however, is that having to provide ongoing and highly involved support, coupled with the current uncertainty, especially due to rising unemployment, is sure to make lenders and credit providers retreat from the market again.
“Resulting in higher APR’s and a reduction of credit options for those who need them most.”
similar sentiments were shared by Anthony Morrow, the co-founder of OpenMoney.
He focused on the FCA’s commitments to overdraft customers who, according to his analysis, are set to struggle even with additional assistance.
As he explained: “Even before the coronavirus crisis, many households were relying on short-term credit to cover essentials.
“The pandemic has left more families than ever struggling to make ends meet and the FCA guidance, which will be in place for at least the next six months, will come as a huge relief to them.
“Under the new measures, lenders must consider a range of options to support customers in financial difficulty, including suspending or waiving further interest or charges to stop debts spiralling out of control and allowing people to stop or reduce repayments.
“Firms also cannot pressurise anyone into repaying their debt within an unreasonably short period of time.
“However, while the banks are being forced to support people in financial difficulties with one hand, with the other they are continuing to increase overdraft charges for many customers. According to Bank of England figures, the average rate on interest-charging overdrafts nearly doubled to 19 percent in August, compared to 10.32 percent in March 2020.
“Ramping up charges during these uncertain times will only drive more families into financial distress and this is an area the FCA should be looking at urgently to ensure all customers are treated fairly.”
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