Coronavirus – Credit card, loan and overdraft support extended
A lifeline has been extended by the Financial Conduct Authority (FCA) to consumers who are continuing to struggle with loan, overdraft and credit card repayments due to the coronavirus pandemic.
The financial regulator has proposed further relief measures, including an extension of the deadline to apply for a credit card or loan payment break to 31 October 2020, which could allow consumers some extra breathing space as the country continues its gradual transition out of lockdown.
This would also allow for those with ‘revolving credit’ – such as catalogue debts – an extended opportunity to take a payment holiday if they need to.
If the proposal is approved, bank customers will be able to request an interest-free overdraft of up to £500, with the deadline to apply also delayed until the end of October. For those consumers who have already opted to take a payment holiday, firms are being encouraged by the FCA to offer their support; whether in the form of reduced payments or a payment deferral for a further three months.Get free advice
Introducing the package of extended measures, FCA Interim Chief Executive Chris Woolard said, “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency. The proposals we have announced 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 proposed support follows a similar pattern to the extension of mortgage payment holidays. Originally introduced in March, it was announced in early June that the option to apply for a mortgage break would be extended a further three months until the end of October.
As with the other coronavirus-driven proposals from the FCA, the new regulations will go to consultation before becoming official. It’s expected they will be confirmed soon.
What new help will be available if the FCA proposal goes ahead?
As the country gradually moves towards a new normal, the extra measures arrive with the disclaimer that consumers should make every effort to go back to making their regular payments if they can. Here’s the full rundown of support:
- Lenders must work with customers – Banks and other lenders will be expected to get in touch with their customers to establish whether or not they can resume making their payments, and work with consumers to plan how they pay back any payments they’ve missed during their payment break.
- Struggling consumers can still ask for help – Customers who are still having difficulties in making their payment can ask firms to provide relief – for example by reducing their credit card repayments to an affordable level for the next three months.
- Overdraft applications will be extended – Consumers who already have an arranged overdraft will be able to ask for more money, up to £500 – which will remain free from interest for three months. They’ll also be able to borrow more money at a reduced interest rate if they choose to borrow beyond the interest-free amount.
- There’s more time to apply for a break – The FCA have extended the application window for those people who are only now experiencing the full financial impact of the Covid-19 outbreak. The option to apply for the scheme has been extended to allow for both extended overdraft and payment break applications up to 31 October 2020.
- Credit files will be protected – As with other support proposals during the coronavirus crisis, the FCA has stipulated that consumers seeking help via any of these measures shouldn’t have experience a detrimental effect on their credit rating. However, the FCA does point out that credit files aren’t the only method future lenders may use to decide if a consumer is creditworthy.
Should I apply for the support?
The extra help has been made available for consumers who truly need it because of the pandemic. If you can, assess if there is anything you can pay towards your debts in the first instance.
These new measures must be applied for, so whether you plan to ask for an extended payment break, a bigger overdraft or a staged return to making your usual credit card repayments, it’s also important to confirm the specifics with your bank or lender.
Eventually, when the payment breaks come to an end, it may be harder to find room in your budget for these payments if you’ve been contributing nothing for a while – and overdrafts are a sure-fire way to rack up further debt, which will have to be repaid at some point. Consider your options carefully: this is not free money.
What if I’m classed as a vulnerable customer?
The FCA have urged banks and other lenders to be ‘particularly aware of the needs of their vulnerable customers’ and have also advised that they should endeavour to help their customers understand the different channels of money support that are available if they do need help. Before going ahead with any financial decision, it’s important to fully understand the future implications.
Can I get extended support for other forms of credit?
Nothing has yet been announced by the FCA for other financial products like car finance, rent-to-own schemes, pawnbroking arrangements or short-term credit, as they’re covered by separate guidance. However, they’ve confirmed that they plan to address these areas of finance soon.