Credit card payment freezes were recently extended up to October 31 and today, the FCA detailed similar measures would be extended to buy-now pay-later (BNPL), Rent-to-own (RTO), pawnbroking and high-cost short-term credit (HCSTC) products. They also revealed how and when the new support will come into effect.
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Payment holidays (or freezes) can be utilised for these types of financial products and the regulator has confirmed that so long as the customers involved are still struggling, they can continue to receive support until October.
The new rules confirm that:
- Firms will provide customers with support by freezing or reducing payments to a level they can afford, on their motor finance, BNPL or RTO agreements for a further three months.
- For BNPL customers, where a loan is within the promotional period, firms will offer customers an additional extension to that period.
- For pawnbroking agreements, where a loan is within the redemption period (irrespective of when the redemption period is due to end) firms will offer a further extension to the redemption period. If the redemption period has already ended, this will mean agreeing not to sell the item during the payment deferral period.
A ban on repossession will also continue until October 31 and it applies to motor finance and RTO customers still facing temporary payment difficulties as a result of coronavirus and who need their vehicles or goods.
The FCA stressed that utilising these support measures should not impact credit scores.
However, they caution that customers should remember that credit files aren’t the only source of information that lenders use to assess creditworthiness.
They detailed that firms implementing these new measures should remain aware of the needs of vulnerable customers and ensure that they engage with them effectively.
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The new guidance/measures will come into force on July 17, which is a mere two days away.
Christopher Woolard, the recent Interim Chief Executive at the FCA commented on the new measures coming into force: “Our measures will ensure that people who are still facing temporary payment difficulties because of this pandemic, continue to have access to the help they need.
“However, if you can afford to start making repayments, you should.”
These types of measures are likely to be direly needed given the impact on the economy coronavirus is still having.
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According to the latest figures from the ONS:
- 11 percent of all businesses are still temporality closed
- The average number of hours worked per week was 29.1 in February to April 2020 (the first time the average has dropped below 30 hours since the series began in 1992) and
- “Multi-factor productivity” fell by 2.6 percent when compared to the same quarter a year ago, the lowest growth rate in 11 years
Consumers are also unlikely to receive much support from their savings at the moment as recent analysis from moneyfacts.co.uk revealed that some of the top rates in the savings market now stand up to 0.45 percent lower than what could be obtained a month ago.
This financial hardship could be made worse if expected rates of inflation come into being as Rachel Springall, a Finance Expert at moneyfacts.co,uk detailed: “. The Coronavirus pandemic has influenced the current state of the savings market and indeed the level of inflation, which may not stay at a four-year low for long.
“While there are hundreds of savings accounts on the market today that can outpace the eroding effects of inflation, the current deals available may not be able to beat the expected rise in the years to come.
“The expected rate of inflation in Q2 2021 is predicted to climb to 1.4 percent and savers would need to tie up their cash for at least four years in a fixed rate bond to beat this today. As it stands, not one standard savings account can beat the Government’s target of 2 percent if this were to be met.”
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