FCA proposes new measures to aid customers affected by Covid-19

The FCA has proposed a package of temporary measures designed as a stop-gap to support users of consumer credit products facing financial difficulty resulting from the coronavirus pandemic.

The regulator will expect firms to offer a temporary payment freeze on loans and credit cards for consumers facing financial difficulties because of Covid-19, for up to three months. Protection is also expected for customers who have been hit financially and already have an arranged overdraft on their main personal current account, with up to £500 to be charged at zero interest, also for up to three months.

The FCA suggested the package is intended to complement measures already announced by the Government to support mortgage holders and renters, as well as the assistance being provided for furloughed employees and the self-employed.

The proposed measures also include a requirement for firms to ensure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft changes came into force, while the FCA also intends for consumers using any of these temporary measures not to have their credit rating affected because of them.

FCA interim chief executive, Christopher Woolard, said: “Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK.

“If confirmed, this package of measures we are proposing today will help provide affected consumers with the temporary financial support they need to help them weather the storm during this challenging time.”

The FCA indicated it was conducting a brief consultation on the measures, but given the national emergency, has asked its stakeholders to respond within a much shorter timeframe than normal – with a deadline of 9am Monday 6 April 2020. If confirmed, the changes would start coming into force by 9 April 2020.

Hargreaves Lansdown personal finance analyst, Sarah Coles, suggested the changes would come as a “huge relief “to many people who had been wrestling with the challenge of vastly reduced incomes.
“In FCA terms, this is a really speedy response, with a very short period of consultation, so this package could be in place by this time next week,” Coles said.
“If you’re struggling to afford interest and debt repayments, don’t assume any of these things are in place until it’s confirmed by your bank. If you just halt payments without confirmation, you may end up being chased for payments and having charges added to your debt. The FCA has made it clear that what it is suggesting is a minimum, and that banks should offer more help for people who are really struggling.”

AJ Bell personal finance analyst, Laura Suter, also welcomed the news, and commented: “The regulator’s move means that anyone is entitled to a £500 interest-free overdraft if their finances have been affected by the current crisis, which at the new interest rates of 40% will save some customers from seeing their interest charges rack up at a time when they can’t afford to repay the debt.

“What’s more, the FCA wants to ensure that no one is disadvantaged by the changes to overdraft interest rates that it has brought in, and banks must now ensure that no one is paying more than under the previous scheme.
“Some banks had taken similar steps already, but clearly the regulator felt the industry wasn’t moving fast enough to help customers who are facing real financial problems right now.”

Chair of the Society of Mortgage Professionals, David Thomas, added: “Ensuring customers do not have their credit ratings negatively impacted by using the temporary reliefs available if they are financially impacted by the coronavirus will be a key component in ensuring a swift recovery for the mortgage market.
“There will be a large number of people whose finances will be seriously affected by coronavirus, but who will be able to rebuild their financial position quickly once the initial crisis is over. It is important that these people are not prevented from restoring their finances by being forced into short term debt, or by having their credit status reduced.
“It is also crucial that the sector takes a unified approach to this guidance: all lenders should adhere to this to ensure the best possible outcome.”

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