Stop-gap measures to help overdraft and credit card customers will go ahead
Banks will be expected to offer customers whose finances have been hit by coronavirus an interest-free overdraft buffer of up to £500 for three months, the City regulator has confirmed.
The Financial Conduct Authority (FCA), which had previously consulted on a package of proposals to offer borrowers more stop-gap help, confirmed on Thursday that it will press ahead with the plans.
It also said that firms should offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus.
If someone has a personal loan, credit card, store card or catalogue credit, they can ask for a freeze on repayments for three months. Personal loans also include guarantor loans, logbook loans and home collected credit.
However, interest will continue to build, which could mean paying higher costs in the longer term – so people should only make the request to freeze payments if they need to.
If they can afford to keep up repayments, either in full or a smaller sum, then they should do so, the FCA said.
All firms should be ready to receive customer requests by April 14, although some firms are adopting the changes immediately.
Firms should also ensure consumers using any of these temporary payment freeze measures will not have their credit file affected, the regulator said.
Many providers have already announced £500 zero interest overdraft buffers, but the exact help being offered has varied from bank to bank.
Providers which have already announced temporary £500 zero interest overdraft buffers for agreed overdrafts in recent days include M&S Bank, HSBC UK, Lloyds Banking Group, TSB and Santander.
Barclays has previously said it will waive overdraft interest from March 27 until the end of April.
The FCA said it expects firms to allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months.
They will also need to make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before recent overdraft changes came into force.
Rule changes from April 6 mean that providers now need to charge overdraft customers a simple rate rather than adding on extra fees and charges which can make costs hard to compare.
Before the coronavirus outbreak, many banks had announced new rates of around 40%, but some have temporarily rolled these back to the previous rate.
Christopher Woolard, interim chief executive at the FCA, said: “We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic.
“The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time.
“The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
“Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
“We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.”
Customers should check firm websites or social media posts for more information, and where possible use online services to get help, to reduce pressure on firm call centres, the FCA said.
It suggested that those who need to telephone their firm should, if they can, wait until after the Easter weekend, even if their lender is offering help sooner than April 14.
The new measures will sit alongside steps taken by the Government to support mortgage holders, renters, furloughed employees and the self-employed.
The FCA said the measures do not replace normal forbearance rules which would be more suitable for a consumer in serious and immediate financial difficulty. Consumers in financial difficulty should contact the Money Advice Service (MAS) for further guidance.