FCA confirms extended consumer credit support

The FCA has confirmed the support that users of consumer credit products will receive if they are still experiencing temporary payment difficulties due to coronavirus.

The regulator indicated its measures have outlined the options that firms will provide credit card and other revolving credit – including store card and catalogue credit – as well as personal loan customers who are coming to the end of a payment freeze.

The measures also confirm the options for customers who have agreed an arranged interest-free overdraft of up to £500, and the FCA added that customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, will have until 31 October to apply for one.

As part of its measures, the FCA also stated that firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid.

FCA interim chief executive, Christopher Woolard, said: “Since the coronavirus crisis began, we have made support available for those borrowers financially affected by the pandemic. For those who are now in a position to restart payments, it will be in their best interests to do so. But for those who still need it, the package we are confirming today ensures there is help and further support.”

The regulator also confirmed that any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files.  

Commenting on the extended measures, Experian head of consumer affairs, James Jones, said: “The confirmed extension of payment holidays for credit products such as credit cards and loans will come as a welcome relief for many borrowers as the effects of the pandemic continue to bite.

“If you think you may struggle to meet your regular payments because of the impact of the pandemic, it is vital that you speak to your lenders and other providers as soon as possible.

“It's important to remember that interest is likely to accrue during any payment holiday which will be added to your outstanding borrowing. As a result, if you can afford to pay something towards your balance – no matter how small – you will limit any future financial impact.”

Hargreaves Lansdown personal finance analyst, Sarah Coles, added: “The FCA has given the go-ahead for chilling overdraft hikes from the big banks. It’s a bitter bow for borrowers who face a bleaker future.
“Changes to overdraft rules at the end of last year meant banks hiked rates on unarranged overdrafts. Many selected a strikingly similar level around 40%, which rang alarm bells with the FCA.
“It highlighted that the changes were leaving banks much worse off and there remained some competition in the market, so people could shop around for a better deal. It means it won’t be investigating any further at this stage.
“Unfortunately, we know this isn’t how people use overdrafts. Our research shows that one in ten people faced with an unexpected expense dip into their overdraft to cover the cost. They don’t research the cost and switch bank accounts first, they dip in and pay the price. It means that anyone who ever uses their overdraft for any reason needs to check the rate their bank is set to charge. If they’ve opted for sky-high rates, it’s time to switch.”

The FCA confirmed its guidance will come into force on 3 July and that it only applies to credit cards and other retail revolving credit, personal loans and overdrafts.

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