UK Banks Grant Payment Holidays On 1.5M Credit Cards, Loans

Credit card and loan customers in the U.K. are getting some relief thanks to a decision by British lenders to grant 1.5 million payment holidays due to the coronavirus pandemic.

Payment holidays are available to customers who are struggling to make their payments because they have fallen ill or have been furloughed from work during the pandemic, a measure announced by the Financial Conduct Authority in April.

Banking lobby group UK Finance reports that 877,800 customer accounts have been granted payment freezes, while another 608,000 payment holidays have been granted on personal loans as of May 21.

According to Britain’s Office of National Statistics, an average of 18% of people said they’d experienced a reduction in their household in income in April. Household type appeared to be a factor: only 8% of single adults living alone said they experienced a reduction in income, compared with 16% of households with two or more adults and 26% of households with children. Survey data from 5,320 adults was collected between April 3 and May 3.

The measure is meant to provide customers with short-term financial support. Lenders may freeze payments for up to three months, while interest continues to accrue normally.

“The banking and finance industry has put a clear plan in place to help Britain through these tough times,” UK Finance chief executive Stephen Jones said recently. “Banks and building societies will continue to help their customers get through the crisis and have a wide range of support available.”

The approved measure allows lenders to offer three interest-free months on customers’ first £500 of their unarranged overdrafts. Banks have approved this on 27 million accounts, UK Finance said.

Lenders will be required to ensure that customers with overdrafts do not pay more interest than they would have paid before, according to the Financial Conduct Authority (FCA)’s measures published on April 9, 2020.

The FCA said the steps regarding overdraft interest are not suitable for those having more serious financial difficulties, and that borrowers should continue making payments if they are able. Lenders are not prevented from offering more generous assistance to their customers.

Banks and other lenders also are allowed to temporarily freeze payments on products such as payday loans, car finance and rent-to-own contracts, the FCA notes.

The frozen payments are just one part of a government plan announced in March 2020 that is intended to help people struggling financially because of COVID-19.

Some people living in the U.K. will also be able to take advantage of mortgage holidays. Lenders owned by Lloyds Banking Group and the Royal Bank of Scotland said they will offer deferred mortgage payments for borrowers affected by COVID-19.

Lenders had approved 1.86 million mortgage payment holidays as of May 28, according to UK Finance. Taking advantage of the payment holiday will not affect consumers’ credit.

The mortgage holiday scheme originally had been due to end in June, but in late May, the Treasury announced homeowners can continue to defer mortgage payments until the end of September. They also have the option of beginning to make smaller payments. 

In addition, the Treasury said its ban on lender repossession of homes will continue until Oct. 31 so customers who have not yet had a payment holiday and are having financial difficulties will be able to request one.

The British government said those taking part in that scheme would be contacted by their lender to discuss how to proceed.

The FCA also advises that banks consider helping customers who are coming to the end of their payment holiday by pointing them toward sources for debt advice, which “may be particularly useful for consumers with pre-existing payment shortfalls or who are likely to be in longer-term financial difficulty.” 

Other steps also have been taken to protect U.K. consumers during the coronavirus pandemic.

Lenders must offer a three-month payment holiday on car finance contracts to customers who are struggling to pay due to COVID-19, and must also allow customers to continue using their cars if they need them. The lenders are not to take steps to end a contract or repossess a vehicle.

Other credit products such as pawnbroking, rent-to-own contracts and buy-now-pay-later contracts are also subject to a three-month payment holiday, the FCA said. Firms are prohibited from repossessing rent-to-own contract items during the crisis, and from charging fees from those who are unable to make payments or collect goods due to social distancing rules.

Lenders have also been instructed to consider making other arrangements, such as rescheduling loan repayment if a payment holiday is not in the consumer’s best interest for some reason.

U.K. banks have been advised to be aware of vulnerable customers’ situations by making sure digital banking options are available to them.

Small businesses are also getting some help from the government.

In an oral statement to Parliament in late April, Chancellor of the Exchequer Rishi Sunak announced “micro loans” would be available for small businesses struggling because of the coronavirus lockdown.

“The most important thing we can do to protect our economy is to protect the health of our people,” Sunak said.

The loans are 100% backed by the government.

These “Bounce Back Loans” allow businesses to borrow 25% of their turnover up to £50,000, Sunak told Parliament. The loans are interest-free for the first year.

The business interruption loan plan was announced in March and offered loans of up to £5 million for businesses with a turnover of £45 million or less, according to UK Finance. The offer was later extended to larger companies, which could secure loans of up to £25 million. Businesses with a turnover of more than £250 million could receive loans of up to £50 million.

The government has said that it will take on 80 percent of the default risk of the larger companies’ loans.

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