The Financial Conduct Authority’s proposal outlines the support firms would be expected to provide credit card and other personal loan customers who are coming to an end of a payment freeze.
For customers who have not yet requested a payment freeze or applied for an interest-free overdraft of up to £500, the deadline for applying for one would be extended until 31st October 2020.
People who have already taken up support and are still facing temporary difficulties with payments due to the coronavirus, firms would continue to provide support with options such as reducing payments to an affordable amount for another three months or further payment deferral.
The proposals include:
- Contacting customers after the payment freeze – Firms should get in touch with their customers in order to find out whether they can resume with payments. If the customer is able to, a plan will need to be agreed on how the missed payments could be repaid. If customers are able to and can afford to return to the regular payments, then it would be in their best interest to consider this.
- Continued assistance for customers – For those that are still experiencing temporary difficulties in making payments due to the coronavirus, firms should support their customers by reducing payments on their personal loans or credit cards to an affordable rate for three months.
- Overdraft support – Customers who have been negatively affected by the coronavirus and have arranged an overdraft on their main personal current account, may request up to £500 interest-free for another three months.
- Extending scheme availability – For those that could be facing temporary payment difficulties due to the coronavirus at a later date, if they have not yet had a payment freeze or applied for an interest-free overdraft of up to £500, they would be able to request one up until the 31st October 2020.
Should a customer require further temporary support during the pandemic, any payment freezes offered under these guidelines should not have a negative effect on credit files. However, it’s important for customers to note that their credit reports are not the only type of information which lenders can use to determine creditworthiness.
When firms are introducing this guidance, it’s important that they are aware of their vulnerable customers’ needs and they will need to think about how they engage with them. Firms should also help their customers to understand the different types of debt support and money guidance and encourage them to use the resources that could benefit them.
In April, the Financial Conduct Authority had set a temporary general expectation across the market that firms should make sure all overdraft customers are no worse off on price compared to the prices that they were charged before the new overdraft rule changes came into force.
Additionally, The FCA does not propose to extend this temporary measure across the entire market. However, overdraft customers who are affected financially by the pandemic may continue to apply for a reduced interest rate on additional borrowings valued over £500.
This advice applies only to credit cards and other revolving credits, such as store cards and catalogue credits, personal loans, and overdrafts. It does not extend to other consumer credit products, such as motor finance, high-cost short-term loans, rent-to-own, pawn-broking, and buy-now-pay-later, which are covered by specific separate guidance.
About Stuart Mosley
Stuart Mosley (CeFA, CeMap, CLTM) founded SJ Financial Solutions in June 2005 having spent 12 years with big corporates such as Halifax and Santander. He felt the personal touch and straight speaking was missing from financial and mortgage advice services and set up SJ Financial Solutions to change this.
If you would like to book an appointment then please get in touch and we can arrange a suitable time to discuss further. We can arrange appointments at a place and time suitable to you, we can discuss your options over the phone or if you prefer email, then this is fine with us.