FCA confirms credit card and loans freeze until October

The Financial Conduct Authority (FCA) has confirmed that the credit card payments freeze could be extended for another three months for customers still suffering from the economic impact of coronavirus.

After imposing a three-month pause on repayments for those struggling amid the fallout of the pandemic on the economy, the Financial Conduct Authority (FCA) has said firms must provide customers still enduring hardship with more support.

The measures outline the options firms will provide credit card and other revolving credit (store card and catalogue credit) and personal loan customers who are coming to the end of a payment freeze and for customers who have agreed an arranged interest-free overdraft of up to £500. Customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, will have until 31st October 2020 to apply for one.

The FCA has confirmed:

• If customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so.
• 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.
• For customers still facing temporary payment difficulties as a result of coronavirus, firms will provide them with support, which could include freezing or reducing payments on their credit card and personal loans to a level they can afford for three months.
• Customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account can request up to £500 interest-free for a further three months. Firms will also provide these customers with further support where it is needed including reducing the cost of borrowing above the interest-free buffer, especially if this cost of borrowing would otherwise increase.
• Customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to coronavirus, would be able to request one up until 31 October 2020
• Any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.

The FCA has confirmed that it will not extend the temporary general expectation in relation to overdraft costs. In April, it asked all firms to temporarily ensure all overdraft customers were no worse off on price when compared to the prices they were charged before the recent overdraft rule changes came into force (those changes benefitted most customers). As was previously the case, firms will be able to set their prices, but, overdraft customers who are financially impacted by coronavirus will continue to be able to request support on any additional borrowing in excess of £500.  Firms that do choose to increase their charges from this temporary level should give customers impacted by coronavirus an opportunity to seek extra support before any changes take effect.

This guidance comes into force on 3rd July 2020 and only applies to credit cards (and other retail revolving credit, such as store cards and catalogue credit), personal loans and overdrafts.

It does not apply to other consumer credit products, such as motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later, which are covered by separate guidance which will be updated soon.

Christopher Woolard, Interim Chief Executive at the FCA, 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.”

Commenting on the announcement, Peter Tutton, Head of Policy at StepChange said “This extension of support for people with credit cards and revolving credit is crucial, as millions of people are not yet in any way back to normal financially.”

“Our research suggests that millions of people have had to borrow to make ends meet, with 1.7 million people turning to their credit card and 1.6 million to their overdraft. Overdrafts will need careful oversight as the support measures become more discretionary on the part of banks.

“While some people will be getting back to work and will be able to resume their normal commitments – which is in their best interests, if it’s possible – others are still a long way from being able to do this and will need careful and structured support for a longer period”

Andrew Johnson, Money Expert at the Money and Pensions Service (MaPS) said “The extension of support measures confirmed today for credit card, personal loan and overdraft customers could be helpful for people who are experiencing temporary payment difficulties, as we know that Covid-19 is continuing to affect people’s finances. It’s really important that people speak to their lenders to find out what options are available and appropriate for them, and consider what this will mean for their repayments in the long term.”

Eric Leenders, UK Finance Managing Director of Personal Finance, said “Lenders are committed to supporting customers through these tough times and the updated guidance from the FCA gives clarity on the next steps for those who continue to face financial difficulty during the ongoing pandemic.”

“For customers who are able to do so, it will be in their best interests to resume payments, but for anyone who is struggling then lenders stand ready to help either through the provision of further payment deferrals, if appropriate, or other support options . Customers who have not applied to their lender for support still have the opportunity to do so until the end of October. For customers with longer-term financial difficulties, lenders are offering continued help and flexibility to suit their needs.”

“The banking and finance industry has a clear plan to help the country through this unprecedented period and is committed to providing ongoing support to those customers who need it.”