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Further help on overdrafts, loans and credit cards planned for those hit by coronavirus

Further help on overdrafts, loans and credit cards planned for those hit by coronavirus

The financial regulator is set to order lenders to take further steps to help customers hit financially by the coronavirus pandemic, including extending the deadline by which customers have to ask for interest-free overdrafts of up to £500 or payment holidays on credit and store cards, loans and catalogue debt.

In April, the Financial Conduct Authority (FCA) announced 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.

And now, it's said that for any customer yet to request either of these, the time to apply for one should be extended until 31 October 2020.

It also says that for those who have already applied for help, firms should continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.

Its suggestions are just proposals for now, and will be put to scrutiny in an accelerated consultation lasting until Monday evening. But it's not expected that the main part of the proposals will be challenged.

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. 

Watch: Martin's view

Before you get into the full detail below, here's MSE founder Martin Lewis's analysis of today's FCA proposals:

Embedded YouTube Video

What help would customers get?

If approved, the proposals would mean firms are expected to:

  • Contact their customers at the end of the payment freeze to find out if they can resume payments – and if so, agree a plan on how the missed payments can be repaid. The FCA says if customers can afford to return to regular repayments, it is in their best interests to do so.
     
  • Reduce payments on credit card and personal loans to a level they can afford for three extra months, if the customer has already requested help, and still needs it.

  • Allow those who already have an arranged overdraft on their main personal current account to request up to £500 interest-free for a further three months, and provide further support in the form of lower interest rates on borrowing above the interest-free buffer for those who ask for it.

    It's worth noting that if the proposals are approved, banks will be able to revert interest rates back to pre-coronavirus levels for most customers. 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.

  • Extend the time the help is available for people who may be affected at a later date – customers who have not yet had a payment freeze on their loan or credit card or an arranged interest-free overdraft of up to £500, and who experience temporary financial difficulty due to coronavirus, would be able to request one up until 31 October 2020.

  • Not report payment freezes as missed payments on credit reports. While you won't get missed payments and defaults reported on your credit file, lenders can often use bank statements or Open Banking data to see that you've taken a payment holiday, and they are allowed to use that information as part of their credit checking process if you apply for new credit in future.

If you do take a payment freeze on your credit card or personal loan, be aware that interest will still accrue and it'll be added to the amount you owe once the payment holiday ends. 

These 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 other credit, such as motor finance, high-cost short-term credit, rent to own, pawnbroking and buy now, pay later. All of these are covered by separate guidance, which the FCA says will be updated soon.

What does the FCA say?

Christopher Woolard, interim FCA chief executive, said: "We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency.

"The proposals we've announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus. Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there."