FCA announces new payment holiday proposals for credit card and personal loan providers

The Financial Conduct Authority’s (FCA’s) new proposals, which also apply to store card and catalogue credit providers, include new guidance for how lenders should approach customers coming to an end of payment freezes, as well as those yet to request one, who are struggling financially due to the pandemic.

If the proposals go ahead as set out, customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, will be able to apply for one for an extended period - until October 31. The regulator also said that any temporary help granted should not negatively impact customers’ credit files.

The new proposals don’t apply to motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later, which are covered by separate guidance, but the FCA effectively gave a tacit warning that this separate guidance “which will be updated soon”.

For those already on support who’re still experiencing payment difficulties due to coronavirus, firms will be expected to offer options including a further payment deferral, or reduced payments to an affordable level for another three months.

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 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.’

In more detail, the FCA proposals are as follows:

• At the end of a payment freeze, firms should contact 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, the FCA said, it is in their best interest to do so.
• 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.
• Support for overdraft customers – allowing customers 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 three months. Lenders will be expected to provide 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 who 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, should be able to request one up until October 31.
• 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, the FCA said, “consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.”

When implementing this guidance, the FCA warned that firms should be particularly aware of vulnerable customers’ needs, and should consider how to engage with them.

Firms should also help customers understand the types of debt help and money guidance available and encourage them to access this support, the proposals state.

In April, the FCA set a temporary general expectation 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 said it 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 said, adding that it “will continue to monitor overdraft pricing.”

The FCA has set out a consultation on these proposals, which runs until 5pm on 22 June 2020. The regulator expects to finalise the guidance shortly after.

The guidance applies only to credit cards and other retail revolving credit, such as store cards and catalogue credit, personal loans and overdrafts.