The FCA has confirmed that borrowers will be given ‘breathing space’ for those struggling to repay debt on credit cards and loans.
Part of the financial emergency plan to help those during the COVID-19 pandemic, this ruling follows measures already introduced to freeze overdraft fees and mortgage repayments, already offered by banks across the UK.
Customers who are already struggling to repay debts or could be struggling, may apply for a payment holiday for up to three months, without impacting their credit scores. This includes logbook loans, guarantor loans, personal loans, doorstep loans, credit cards and some types of car finance.
The FCA said that it is contemplating the same measures for payday loans and car finance – and confirms that they will be making an announcement this week. There is currently no legislation on car finance deals including those bought on hire purchase or through a leasing deal. Types of loans currently excluded from this measure are peer to peer loans and business credit cards.
For overdrafts, you may borrow up to £500 interest free, but if you do not have an overdraft facility from your bank, you may be able to apply for one but approval will be subject to eligibility.
In addition, those deferring mortgage repayments may incur an administration fee from their bank and customers should check terms and conditions beforehand.
The FCA’s guidelines confirm that banks may reject a customer’s payment holiday if they believe that ‘it is not in their best interests.’
The FCA added that it “would obviously not be in customers’ interests if it would give [them] a greater overall debt burden compared to other solutions”. In these instances, the bank is expected to offer other ways to help the customer, such as reducing or waiving interest, or extending the term of the loan.
“Firms should review their prices to consider whether they are consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of coronavirus in order to ensure that they do not pose unjustifiable burdens on these customers who may be experiencing temporary payment difficulties,” said the FCA.
Nic Redfern of Know Your Money commented: “”Many businesses will need to take immediate action to get through the challenges that coronavirus has caused. The government has announced they will offer financial support to struggling businesses, but there are other steps businesses can take too.”
“For example, they can approach their bank, suppliers, and other companies they work with to see if they can help to ease any financial pressures. Businesses could also try to adapt to the circumstances by diversifying their services, whether that’s by offering new products or by delivering to those staying at home.”
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