Further help on overdrafts and credit cards to be offered under FCA plans

Overdraft customers are set to be able to ask for another three-month interest-free buffer of up to £500.

Outlining proposals to continue help for struggling borrowers, the Financial Conduct Authority (FCA) said that for customers yet to ask for an arranged interest-free overdraft of up to £500, the time to apply for one would be extended until October 31.

Customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account would be able to request up to £500 interest-free for a further three months.

Before the coronavirus outbreak, the regulator put plans in place for a huge shake-up of the way firms can charge for overdrafts, coming into force earlier this year.

Several lenders pegged their new arranged overdraft rates at around 40% as a result – around double the rate that many customers were used to.

But in April, the FCA set a temporary general expectation across the market that firms should ensure all overdraft customers are no worse off on price when compared with the prices they were charged before the overdraft rule changes came into force.

On Friday, the FCA said it does not propose to extend this temporary measure across the whole market but overdraft customers who are financially impacted by coronavirus will continue to be able to ask for a reduced interest rate on any additional borrowing over their £500 interest-free buffer.

The FCA said it will continue to monitor firms’ overdraft pricing.

The FCA is also proposing further support for people with credit cards, store cards and catalogue credit and personal loan customers who are coming to an end of a payment freeze, as well as those who are yet to request one.

It said that at the end of a payment freeze, firms should contact their customers to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid.

If customers can afford to return to regular repayment, it is in their best interest to do so.

Anyone who continues to need help should get help, it added.

For customers still facing temporary payment difficulties as a result of coronavirus, firms should provide them with support by reducing payments on their credit card and personal loans to a level they can afford for three months.

Where a customer needs further temporary support to bridge the crisis, any full or partial payment freezes offered under the guidance should not have a negative impact on credit files, the FCA said.

But borrowers should bear in mind that credit files are not the only source of information lenders may use to assess creditworthiness.

Lenders may, for example, refer to information they already have about a customer.

Christopher Woolard, interim chief executive at the FCA, said: “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency.

“The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus.

“Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”

Comments on the proposals are being invited by 5pm on June 22 and the regulator expects to finalise the guidance shortly afterwards.

The plans do not apply to other consumer credit products, such as motor finance, high-cost, short-term credit, rent-to-own, pawnbroking and buy-now, pay-later products. These are covered by separate guidance which will be updated soon, the FCA said.

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