Borrowers with personal loans, credit cards and rent-to-own products will have more time to apply for payment holidays under new coronavirus support measures outlined by the City regulator.
As England prepares for a new national lockdown from Thursday, the Financial Conduct Authority (FCA) has proposed to update its temporary guidance around some types of consumer borrowing, including personal loans, credit cards, motor finance, rent-to-own and buy now pay later.
Under the proposals, consumer credit customers who have not yet had a payment holiday will still have time to request one.
— Financial Conduct Authority (@TheFCA) November 2, 2020
This could last for up to six months unless it is obviously not in the customer’s interests.
A similar announcement was made regarding mortgage customers on Saturday.
People were previously given until October 31 to apply for a payment holiday, after which time lenders were to move to a system of giving more tailored support, based on individual needs rather than blanket deferrals.
The FCA also said on Monday that payday loan customers will be able to apply for a one-month payment holiday if they have not already had one.
The regulator’s latest statement did not mention overdrafts.
— Financial Conduct Authority (@TheFCA) October 31, 2020
Some borrowers have been moved onto new overdraft rates of around 40% by their account provider as part of changes to the way lenders are allowed to charge for overdrafts.
However, before the second lockdown in England was announced, the FCA has previously said that it expects lenders to continue to provide tailored support to borrowers, including overdraft customers, who are still struggling financially due to coronavirus.
Giving guidance previously which included support for overdraft customers impacted financially by coronavirus, the FCA said lenders should prevent customers’ balances from escalating once they have put in place a repayment arrangement by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen.
The FCA said on Monday that consumer credit customers should not contact their lender just yet – and lenders will provide information soon on what this means for them and how to apply for this support if its new proposals are confirmed.
Consumer credit customers who have already benefited from payment deferrals and are still experiencing payment difficulties should speak to their lender to agree tailored support, the FCA added.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “The FCA has been right to respond quickly to this second lockdown, which will unfortunately see many more households fall into financial difficulty – some of them for the first time.
“Extending the availability of payment deferrals on both mortgages and consumer credit is a sensible approach.”
She added: “More widely, it is becoming increasingly clear that the Government will have to extend its £20 a week uplift in Universal Credit beyond April. It would be better to announce this now, to give people who have lost their jobs some reassurance that this additional support will not be withdrawn in just a few months’ time.”
Regarding mortgage payment holidays, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “It is good to see such decisive action taken so quickly. Many borrowers will be worrying about paying their mortgage and extending payment deferrals for a further six months will provide them with some comfort.
“However, the advice remains the same – only ask for a payment deferral if you need one. Interest will still rack up and you will have more to pay off in the long run so the option should only be utilised by those who really need it.”