Help on overdrafts and credit cards confirmed for those hit by financial problems due to coronavirus
The financial regulator has confirmed that banks should offer a temporary payment freeze on credit cards and loans for three months and offer interest-free overdrafts of up to £500 on current accounts, in a set of new rules introduced to combat the effects of coronavirus on people's finances.
The Financial Conduct Authority (FCA) unveiled its plans to help customers hit financially by the virus last week, and after a short consultation, it has now confirmed that the rule changes will start to come into force from today.
But it says that some banks will need until Tuesday 14 April to fully implement all of the changes.
See our Coronavirus Finance & Bills Help guide for full and constantly-updated info on the effects of coronavirus on your finances – and what help's available. See specific info on what loan and credit card providers are offering as well as what banks are doing in terms of overdrafts.
What help do customers get under the new rules?
The measures introduced mean firms are expected to:
- Offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus. These payment holidays won't be interest-free though, so while they'll help those with cash flow problems, only do this if you need to.
- Allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account up to £500 charged at zero interest for three months – if they request it. This is a particular help given that FCA rule changes – which came in earlier this week – require banks to ditch daily overdraft fees and just charge interest, resulting in most now charging 40% AER, nearly double a high street credit card, making overdrafts the new danger debt.
- Make sure that all overdraft customers are charged no more than they would have been before the recent overdraft pricing changes came into force.
- Ensure consumers using any of these temporary payment freeze measures will not have their credit file affected.
The FCA's also agreed to one of the key asks MoneySavingExpert.com founder Martin Lewis put forward in the consultation last week. Usually if you have a 0% credit card deal and miss a payment, you lose the 0% deal immediately and begin paying interest. But under the new rules, as Martin suggested you WON'T be penalised if you take a payment holiday and will instead get to keep the 0% deal.
The FCA has also clarified that the guidance applies to guarantor loans, logbook loans, home collected credit, a loan from community development finance institutions and some loans issued by credit unions, but only where these are regulated. It also applies to firms which have acquired such loans.
However, it won't apply to car finance, payday loans and other short-term credit, though with car finance at least, the regulator is expected to make a further announcement soon.
It's worth noting that while the FCA says these new rules will start to come into effect today (Thursday 9 April), banks don't have to fully implement them until Tuesday 14 April. It's therefore possible, for instance, that in the next few days you may find you're charged more for an overdraft than you have been before recent overdraft pricing changes came into force.
We've asked the FCA whether in that scenario the extra you're charged would be retrospectively refunded once banks have fully implemented the new rules next week, and will update this story when we hear back.
How do I ask for help if I need it?
The rules don't make this help automatic for all customers, only those struggling who ask for help, though some banks have already gone over and above the new FCA requirements – for example, Halifax, HSBC and Lloyds have said everyone with an overdraft will get £500 interest-free.
The FCA says customers should check firm websites or social media posts for more info, and where possible use online services to request assistance as this will reduce the pressure on busy call centres.
It adds that if a customer needs to get in touch by telephone, they should wait until after the Easter weekend if possible, even if your lender is offering help sooner than the Tuesday 14 April deadline.
Remember, some banks are also offering their own forbearance measures that may be more useful than the mandatory measures if you're in immediate financial difficulty.
'People need to be careful with payment holidays'
MoneySavingExpert banking editor Helen Saxon said: "As we suspected last week when the FCA did a lightning-quick consultation on these measures, they've sailed through without changes. While we've already seen many banks and lenders put forbearance in place that goes over and above what the FCA's ordered, this ends the patchwork of help from different banks and sets some minimum standards.
"The overdraft help is especially welcome, providing an interest-free break for those who need it, while making sure no one pays more than they were before the FCA shook up the market.
"Yet people need to be careful with payment holidays. While essentially they're likely to be given to anyone who asks, look carefully at your budget as these aren't interest-free. You will still rack up interest, and you will pay slightly more overall. If you've suffered a drastic income change and you need the holiday, do it. If you haven't and you don't need it, think carefully."
What does the FCA say?
Christopher Woolard, interim chief executive at the FCA, said: "We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic.
"The measures we've announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts facing temporary financial difficulties because of the pandemic.
"Customers should think carefully before making use of these measures, and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so. We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week."