Freezing payments on loans and credit cards for those struggling with debt, along with easier overdrafts, will begin Thursday after an emergency package of “breathing space” measures was officially released. introduced by the Financial conduct authority.
From April 14, the rules will extend to other forms of credit – such as store cards and catalog credit – with the regulator promising to add support for car financing to its temporary measures next week.
The rules were first offered last week – and have already been adopted by many banks – but after a brief consultation they have now entered into force across the industry.
Personal loans and credit cards
Lenders will have to offer a temporary payment freeze for up to three months, for consumers affected by the coronavirus. Banks were also told they could not suspend cards during this time.
If you have a personal loan, credit card, store card, catalog credit, guarantor loan (such as Amigo), logbook loan or credit collected at home (also called home loan) you can request a refund freeze for three months.
Payday loans are not yet covered by the rules and neither are cars purchased on hire-purchase or leasing. But the FCA said: “We are reviewing these and other types of specialist loans, and plan to announce specific proposals in due course.”
Peer-to-peer loans, such as those from Zopa and Ratesetter, do not fall under the rules, although the FCA has said it expects companies to help struggling customers. Business credit cards are also excluded from the rules.
Like with mortgage payment holidays, these payment freezes are not free. Customers will still have to pay accrued interest after the deferral period has ended.
Anyone with an arranged overdraft can apply for up to £ 500 interest-free overdraft for three months. If your current overdraft is less than £ 500, you will not pay any interest on your current overdraft limit amount. If you have no overdraft or your limit is less than £ 500, you can request a new overdraft or an increased limit, but this will be subject to normal affordability checks.
Anyone using these measures should not have their credit report affected. The FCA said businesses should “ensure that consumers using any of these temporary payment freezes will not have their credit reports affected.”
When banks can refuse
The FCA has cautioned its rules, saying there are situations where a lender can refuse a deferral of payment. In its guidance, the FCA said: “A company should grant the customer a three-month deferral of payment unless the company determines (acting reasonably) that it is clearly not in the customer’s best interests to do it.”
The FCA added that it “would obviously not be in the best interests of customers to give [them] a higher overall debt than other solutions ”. In these cases, the bank is supposed to offer other means of helping the customer, such as reducing or waiving interest, or extending the term of the loan.
People with very high interest credit cards (usually those with the lowest income) who have repayment problems may receive additional help. “Companies should review their prices to determine if they comply with the duty to treat customers fairly in light of the exceptional circumstances arising from the coronavirus to ensure that they do not impose undue burdens on these customers. who may incur a temporary payment. difficulties, ”FCA said.