Credit card and loan borrowers can freeze repayments for three more months, but regulator says they should pay a reduced amount if possible
- The FCA brought in new unsecured debt proposals
- It announced a three-month extension to payment holidays
- Watchdog also says overdraft borrowers could have a £500 fee-free buffer for three more months – but those who exceed it could soon end up paying more
Hard-up credit card and personal loan borrowers will be able to put their repayments on ice for another three months, the Financial Conduct Authority has confirmed.
However, the city watchdog said that those who could afford to make reduced payments should do so.
Borrowers who have yet to take a payment freeze, along with those who had not yet applied for a £500 interest-free overdraft with their bank, have until the end of October to ask for one.
The announcement is in line with moves made to extend mortgage holidays for another three months, announced at the end of May.
Credit card and loan borrowers will have until 31 October to ask to put payments on ice, and can take a payment break of up to six months
The FCA previously brought in the rules for overdraft, credit card and personal loan borrowers in April, with three-month payment holidays taken by more than 1.65million people by the end of last month.
There was reportedly debate over providing another blanket three-month payment holiday to unsecured borrowers hit hard by the coronavirus crisis, due to the cost of rolling up interest, especially on credit cards.
This is Money previously worked out that taking a three-month payment holiday on a credit card with an APR of 29.9 per cent and a £4,000 balance would see £270 interest added during the break.
In its announcement the FCA made it clear that it wanted borrowers to make reduced payments where they could rather than simply put their payments on hold for a further three months.
It said banks should contact customers at the end of a three-month payment freeze to find out if they can resume payments and agree on a repayment plan if they could.
Interim chief executive Chris Woolard said: ‘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.’
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Richard Lane, director of policy at StepChange Debt Charity, said the announcement was ‘a huge relief’ but called for more support by those whose finances had been hit hard by the coronavirus pandemic.
‘Unless further long-term support measures are put in place, this relief will be short-lived.
‘Our research has found that 4.2million people have borrowed to make ends meet since lockdown began, storing up a tsunami of £6billion 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.’
The FCA’s announcement on overdrafts also contains a potential sting in the tail for those unaffected by the coronavirus.
All banks scrapped changes which would see households pay interest rates of 35 per cent or more for borrowing, with some waiving fees altogether and almost setting lower interest rates.
Could higher overdraft charges be awaiting borrowers after they exceed fee-free buffers after a temporary reprieve?
However, for those whose finances are not in peril due to the virus, higher overdraft rates could be coming soon.
The FCA said: ‘In April, we set a temporary general expectation across the market that firms should ensure all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft rule changes came into force.
‘The FCA does not propose to extend this temporary measure across the whole market.
‘However, overdraft customers who are financially impacted by coronavirus will continue to be able to request a reduced interest rate on any additional borrowing in excess of £500.
‘The FCA will continue to monitor overdraft pricing.’