personal finance

UK borrowers offered relief on credit cards and overdrafts 


Britain’s financial regulator is proposing a temporary freeze on credit card and loan repayments, plus interest-free overdrafts, extending its help for borrowers hit by coronavirus disruption beyond the mortgage payment holidays granted last month.

On Thursday, the Financial Conduct Authority set out what it called “targeted temporary measures designed as a stopgap” for consumers in financial difficulty, and gave banks and credit card issuers until Monday to respond to its plans. If accepted, they will come into force from April 9.

Among the proposed new reliefs are a payment freeze on credit cards, store cards, personal loans and catalogue credit for up to three months, although lenders may also consider other measures, such as reductions in monthly payments. They may not suspend cards or accounts during the period, though. A “reasonable rate of interest” may still be charged, but the regulator stressed that interest should be waived “in the event that a customer requires full forbearance”.

Concerns over the rolling up of interest during a payment freeze and potentially adding to a customer’s total debt have been the focus of talks between the FCA and banks in recent days. On Monday, one person close to the discussions said they were looking at “solutions that will work and ensure people don’t end up in more debt”. An interest waiver provides a way round this.

In addition, bank customers suffering a financial hit from coronavirus may have any pre-arranged overdraft of up to £500 charged at zero interest for up to three months. Banks must also ensure that recent changes to the overdraft rules do not leave any customers worse off during the current economic crisis. 

Christopher Woolard, interim chief executive of the FCA, said: “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.”

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These new reliefs extend the three-month payment holidays offered on mortgages to unsecured lending. On March 17, chancellor Rishi Sunak announced that banks had agreed to give struggling customers a mortgage holiday of up to three months. Subsequent guidance from the FCA said that these should be granted to any customer who “may experience payment difficulties”, and told lenders they should not investigate “the circumstances surrounding a request”.

Some lenders initially expressed concern that mortgage payment holidays might have to be granted where they were not needed or appropriate to borrowers. They also feared that processing requests for them would cause logistical problems.

But Lloyds Banking Group welcomed the proposed extension of payment holidays to loans and credit cards. Its retail director Vim Maru said it would allow customers to apply for payment holidays on mortgages, loans and credit cards using an online application and provide customers with a decision “in days”.

Consumer campaign group Which? advised borrowers needing “breathing space” to make use of these facilities if they become available next week, noting that they will not adversely affect people’s credit records. 

“Once these measures are introduced, we urge anyone who is struggling to contact their bank to see what assistance it can provide,” said Gareth Shaw, head of money at the organisation. “If you can, do so online so that telephone and branch services can be accessed by those who need them most.”



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