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New payment break guidance begins for credit card firms

New guidance from the Financial Conduct Authority (FCA) for credit card and store card providers to extend payment holidays, and grant new ones, takes effect today (July 3).

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The measures the regulator announced this week also apply to catalogue credit firms and providers of personal loans, when they’re outlining options to customers coming to the end of a payment freeze or those who agreed an arranged interest-free overdraft of up to £500.


Under the guidance, customers yet to request a payment freeze or an interest-free overdraft up to £500, will have until October 31 to apply.


Just as the new guidance was announced, UK Finance published statistics showing that lenders have offered 27 million interest-free overdrafts, provide 990,000 payment deferrals on credit cards and agreed 686,000 deferrals on personal loans.


Echoing the point on the volume of customers affected, Peter Tutton, head of policy at StepChange Debt Charity, said: “Our research suggests that millions of people have had to borrow to make ends meet, with 1.7 million people turning to their credit card and 1.6 million to their overdraft. Overdrafts will need careful oversight as the support measures become more discretionary on the part of banks.”


The FCA, StepChange and UK Finance were unanimous in their message that customers should resume payments if they can.


Christopher Woolard, interim chief executive at the FCA, said: “Since the coronavirus crisis began, we have made support available for those borrowers financially affected by the pandemic. For those now in a position to restart payments, it will be in their best interests to do so. But for those who still need it, the package ensures there is further support.”


The guidance taking effect today, effectively confirms the following:

· If customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so.

· Firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments – and if so, agree a plan on how missed payments can be repaid.

· For customers still facing temporary payment difficulties due to coronavirus, firms will provide support, which could include freezing or reducing payments on their credit card and personal loans to an affordable level for three months.


Customers negatively impacted by coronavirus, who already have an arranged overdraft on their main personal current account, can request up to £500 interest-free for another three months.


Firms will also provide these customers with further support where it is needed including reducing the cost of borrowing above the interest-free buffer, especially if this cost of borrowing would otherwise increase.


Any new or extended payment freezes or partial payment freezes offered under this guidance should not negatively impact credit files, the FCA said. However, the regulator added, consumers should remember that credit files “aren’t the only source of information which lenders can use to assess creditworthiness”.


The regulator also said firms should consider how they engage with vulnerable customers, and those customers’ needs, and generally help customers understand the debt advice options available.


The FCA also confirmed it will not extend the temporary general expectation in relation to overdraft costs.

In April, the regulator asked all firms to temporarily ensure all overdraft customers were no worse off on price when compared to the prices they were charged before the recent overdraft rule changes came into force (those changes benefitted most customers).


As was previously the case, firms will be able to set prices, but, overdraft customers impacted by coronavirus will continue to be able to request support on extra borrowing in excess of £500. Firms that do choose to increase their charges from this temporary level should give customers impacted by coronavirus an opportunity to seek extra support before any changes take effect, the regulator said.


Warning it will continue to monitor overdraft pricing, the FCA has published an update following a letter was sent to lenders in January, requesting information on new overdraft pricing.

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