Payment holidays were originally designated for mortgages but they were soon extended to credit card payments and other debt obligations. In recent weeks, these types of measures have been extended by Rishi Sunak and the wider government and today, the FCA announced that certain consumer credit products would also get an extension.
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For those who haven’t claimed one yet, it will now be possible to claim them up until October 31 2020.
On top of this, for those who have already taken up support and are still experiencing temporary payment difficulties due to coronavirus, firms would continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.
Christopher Woolard, the Interim Chief Executive at the FCA, provided the following comments with the announcement: “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.”
The proposals themselves detailed the following:
- 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 gets help – 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 3 months.
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- Support for overdraft customers – allowing customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, to request up to £500 interest-free for a further 3 months, and providing further support in the form of lower interest rates on borrowing above the interest-free buffer and repayment plans for those who would benefit from them.
- Extending the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to coronavirus, would be able to request one up until 31 October 2020.
- Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
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The FCA will welcome comments and feedback on the proposals from the industry until 5pm on June 22 2020, with finalisation of the details to be confirmed in the days following this.
Richard Lane, the Director of Policy and External Affairs at StepChange, responded to the announcement: “The extension of payment holidays for credit cards, overdrafts and other forms of consumer credit will come as a huge relief for the many thousands of households struggling to keep up with credit repayments during this pandemic.
“But unless further long-term support measures are put in place, this relief will be short-lived.
“Our own research has found that 4.2 million people have borrowed to make ends meet since lockdown began, storing up a tsunami of £6bn of debt that is set to worsen if left unchecked.
“With many households wondering how they will catch up with deferred payments, the FCA must not let payment holidays end with a cliff edge to debt. Withdrawing help from those who need more time to recover risks exposing them to avoidable long-term financial difficulty.
“With people also falling behind on rent, council tax and fuel bills, the Government needs to build up dedicated hardship funds for those forced into debt thanks to Covid-19. In the long-term, more viable alternatives to high cost credit must be made available to prevent those on the lowest incomes falling into a debt spiral.”
This sentiment is also shared by MoneySuperMarket, as a spokesperson provided the following comments: “The further measures of support announced this morning by the FCA for consumer credit customers are welcome. But it’s important to stress that all these measures are temporary and don’t solve the longer term challenges faced by many borrowers.
“Borrowers should think carefully before requesting further interest freezes or renegotiating their payment rates – in particular they should make sure that they have a clear understanding of the impact this will have on their interest payments down the line.
“If you’re struggling with products such as loans, overdrafts or credit cards, you should consider whether you can consolidate or transfer your debts into products with better, more manageable rates. For example, some balance transfer credit cards are currently offering 0% interest on transferred balances for up to two years.”
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