FCA proposes credit-card payment freeze and £500 overdraft for all

The Financial Conduct Authority has said that loan and credit card repayments could be frozen for three months, while those affected financially by the virus outbreak will benefit from a £500, fee-free overdraft.

Loan and credit card repayments are to be frozen for three months as the Financial Conduct Authority (FCA) urges banks to provide consumers with financial relief in the face of an unprecedented crisis. The regulator has also proposed that banks offer a £500 interest-free overdraft, with anyone financially affected by the coronavirus pandemic eligible to apply.

The stopgap measures aim to support users of consumer credit products that might be facing financial difficulties because of the “exceptional circumstances” arising from the virus.

Previously announced changes to overdrafts meant that from 6 April financial institutions would only be able to charge a single annual interest rate for both arranged and unarranged overdrafts. Many providers had pegged their interest rates at around 40%, meaning the £500 interest-free overdraft would provide relief for many.

“Given these measures would span a wide variety of firms the FCA is conducting a brief consultation on our measures,” the FCA said. “However, given the national emergency and the significant impact on consumers' finances right now, we have asked all stakeholders to respond within a much shorter timeframe than normal.”

The FCA proposals for overdrafts and loan repayments will go out for consultation on Monday and if approved by banks could provide significant financial relief for hundreds of thousands of people.

If confirmed, measures would come into force by 9 April.

The three-month payment freeze applies to credit cards, store cards, and catalogue credit. If the measures are put into place, customers would be able to ask lenders for a payment freeze or for a reduction in monthly payments during this period.

Customers with personal loans would also be able to ask for a three-month freeze if needed.

However with the exception of the £500 overdraft proposal, banks and lenders would be allowed to charge a “reasonable” interest rate if a customer requests a temporary payment freeze.

The FCA’s proposals comes after it was revealed 950,000 applied for Universal Credit in the last two weeks.

“The proposed changes to the FCA’s rules should enable lenders to deliver further support to their customers and we will continue to work with the regulator as part of the industry’s commitment to get the country through these difficult times,” said Stephen Jones, Chief Executive of UK Finance.

Vim Maru, Retail Director at Lloyds Banking Group, said the bank welcomed the FCA’s guidance and announced that “customers can apply for payment holidays on mortgages and loans using a new online application that provides a decision in days, this will also be available for credit cards this week”. Missed payment fees on mortgages, credit card, and loans will be waived for three months.

From 6 April, “Lloyds Bank, Halifax and Bank of Scotland customers will also be able to access a £300 interest-free overdraft and we will introduce a new overdraft charging structure which means all of our customers will pay less interest than they do today.”

Recommended

How to use credit cards to deal with your debt
Credit cards

How to use credit cards to deal with your debt

Various types of credit card – including balance transfer and zero-interest – make owing money much less expensive, says Ruth Jackson Kirby.
16 Feb 2021
How to deal with credit-card debt
Credit cards

How to deal with credit-card debt

Feeling the pinch? There are cheaper options than a payment holiday if you owe money on your credit cards.
7 Jun 2020
Credit card tips to get you through the crisis
Credit cards

Credit card tips to get you through the crisis

Getting your money back, taking a break from payments and a safer place to leave your airmiles.
5 May 2020

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021