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The Financial Conduct Authority has announced proposals for providing continued coronavirus financial relief to consumers.
The FCA’s proposals outline the support that firms would be expected to provide for their customers.
Customers who have yet to request a payment freeze or an interest-free overdraft of up to £500 would be able to do so until Oct. 31, 2020.
Firms would continue to offer support to consumers who have already asked for assistance yet are still experiencing financial difficulties. Options for those customers include a further payment freeze or reduction in payment to an amount which the customer can afford for three more months.
Other proposals are included in the plan as well.
The FCA proposes firms should contact customers coming to the end of their payment freeze to find out if they are able to resume payments, and, if so, agree on a plan for the repayment of the missed payments.
Another part of the FCA’s proposal says that “anyone who continues to need help gets help.” Firms should provide customers still facing temporary financial difficulties with financial support by reducing payments on their credit cards and personal loans to what they can afford for three months.
The plan also offers support for overdraft customers. Firms should allow customers in need of continued coronavirus financial relief to request up to £500 interest-free for another three months. Firms should also offer lower interest rates on borrowing that exceeds the interest-free buffer and offer repayment plans.
And finally, under the FCA’s proposal, payment freezes or partial payment freezes should not negatively affect the credit of customers in need of temporary support.
The FCA’s plan does not call for extending this temporary measure across the whole financial market; the guidance applies only to credit cards and retail revolving credit, such as store cards and catalogue credit; personal loans; and overdrafts.
The proposals do not apply to consumer credit products such as vehicle financing, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later.
The FCA is expected to update separate guidance on those products soon.
However, overdraft customers in need of coronavirus financial relief will continue to be able to request a reduced interest rate on any additional borrowing in excess of £500.
“We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency,” said Christopher Woolard, the FCA’s interim chief executive. The proposals “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 extension of the payment freezes came Friday, as UK Finance said 1.9 million mortgages were now subject to a payment holiday — that’s the equivalent of one in every six home loans.
The payment deferral is about £755 per month of suspended mortgage payments, UK Finance said.
The FCA had already extended mortgage payment holidays until the end of October, the Guardian reported.
The original mortgage holiday plan had been due to end in June.
Britain’s Office of National Statistics found that an average of 18% of people said they’d experienced a reduction in household in income in April. The type of household seemed to be a factor: Only 8% of single adults living alone said they experienced a reduction in income, while with 16% of households with two or more adults and 26% of households with children had experienced a reduction. The data comes from 5,320 adults surveyed between April 3 and May 3.
As of May 28, lenders had approved 1.86 million mortgage holidays, according to UK Finance.
“Lenders understand that many households will continue to see their finances squeezed as the pandemic continues, and we are working hard to ensure everyone gets the support suited to their needs,” said Eric Leenders, UK Finance Managing Director, Personal Finance. “The industry has a clear plan to help homeowners get through these tough times, and whilst it is best for customers to restart their payments if they can, where this is not possible lenders are keen to help, whatever a customer’s financial situation.”
Money Advice Trust Chief Executive Joanna Elson told The Guardian that the FCA was right to give people more time.
“The financial shock to households that the outbreak has caused is like nothing we have seen before and we expect debt problems to increase significantly in the months ahead,” she said.
Have you taken advantage of payment freezes or mortgage payment holidays? Tell us your story in the comments.
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