Martin Lewis welcomes FCA proposals to end the “banking lottery” for coronavirus-hit consumers
The Financial Conduct Authority has today announced proposals to ask firms to offer payment freezes on credit cards and loans, and charge no interest on overdrafts of up to £500 for three months to help customers who have been hit financially by the coronavirus pandemic.
The regulator is holding a short consultation on its proposals this week – and if approved, the new measures would start to come into force by Thursday 9 April.
Martin Lewis, founder of MoneySavingExpert.com, said: “This is yet another, important, welcome, yet unprecedented coronavirus-driven market intervention – this time by the regulator. We have already seen many unsecured lenders put some forbearance criteria in place, a few even more generous than the minimum standards the FCA is imposing – such as entire overdrafts at 0%. However the provision is patchy and has become a banking lottery; and that’s unfair – no one could’ve taken into account when they signed up for products how considerate each lender would be in these extraordinary times.
“The overdraft change is especially important. In a terror of timing, by next Monday – the start of the tax yar – almost all lenders were due to be charging about 40% EAR on overdrafts. This is nearly double that of high-street credit cards. That made overdrafts the new danger debt. This change would reverse that at least in the short term, both with the new minimum £500 interest-free, but also because it’s required that no one will pay more than they used to due to the changes.
“While the overdraft changes are unambiguously good, the move on loans, cards and catalogues is useful for some but must be treated with care. Payment holidays mean exactly what they say – you don’t pay, but you can still be charged interest. And with interest rates often high, especially on cards, that can mean storing up trouble for future. Those struggling for cashflow may have no choice, but if you don’t need to do it, don’t.
“It’s important to remember all of this is a consultation, done urgently, ending next Monday with changes enacted on Thursday. Having said that, my suspicion is the consultation is just a formality, following process, and this’ll be put in place relatively unchanged.”