Britain’s financial regulator has confirmed that it will allow three-month payment holidays on consumer loans where borrowers have been hit by coronavirus disruption. The new flexibility will also apply to high-cost credit, with motor finance deals to be added in coming days, it said.
Last week, the Financial Conduct Authority said it was consulting on a range of measures to provide temporary relief to struggling consumers, and gave banks and credit card issuers until Monday to respond.
On Thursday morning it confirmed that the necessary rule changes had been made but said the full range of measures would not apply until Tuesday, April 14. These include a temporary payment freeze on loans and credit cards for up to three months; zero interest on pre-existing arranged overdrafts of up to £500; and no adverse price change on overdrafts.
A similar three-month payment holiday on mortgages was announced by chancellor Rishi Sunak last month, leading hundreds of thousands of borrowers to request one from their lenders. Car finance payment relief will now also be provided, the FCA said on Thursday, with full details to be given after Easter.
Interim FCA boss Christopher Woolard said: “The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time . . . 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.”
Some debt charities had wanted a complete freeze on credit card and loan interest charges, too, but the regulator’s final guidance says interest may still accrue. However, the FCA clarified that where a customer was already in financial difficulty, unrelated to coronavirus, its existing forbearance rules applied, and these allow interest to be waived.
It also said that the new relief measures applied to people who have to use high-cost products — such as “doorstep” or home collected credit and guarantor loans — because banks will not lend to them.
Lenders had originally been asked to make the reliefs available from Thursday, but they have been delayed until the following Tuesday, apparently due to some of the legal difficulties in suspending repayments. UK Finance, the industry body for UK lenders, said: “There were a number of regulatory complexities that could have stood in the way of the ability of all lenders to deliver much-needed support for customers.”
Last week, some warned that borrowers granted payment holidays would still have to be sent threatening arrears letters, under the strict terms of the Consumer Credit Act. In the FCA’s final guidance, there is no solution to this problem other than lenders sending “suitable explanations or context with these notices if they consider that they might otherwise lead to confusion”.
Despite the logistical issues, consumer group Which? welcomed the measures and called on lenders to explain the costs attached — and alternatives — to a payment holiday. Spokesperson Gareth Shaw said: “Banks must ensure they are informing their customers, particularly their more vulnerable ones, about these options, and making them aware of the terms of these measures so they can decide whether it’s the best option available to them before applying.”