Banks must soon give payment holidays on credit cards, loans and overdrafts - here’s what you need to know
As the coronavirus pandemic continues and the UK remains in lockdown, new measures are being brought into place to help those who may now be in need of financial support as a result.
Payment holidays will be given on both credit cards and loans, and banks will have to give customers a minimum of a £500 interest-free buffer on overdrafts.
These new measures have been designed in order to provide a short-term stop-gap for those who may now need financial support, for a period of up to three months.
Banks have been told that they are not allowed to increase anyone's overdraft costs during the Covid-19 pandemic. They have until 9am on Monday 6 April to respond to the Financial Conduct Authority (FCA), before it then makes the changes official.
When will the new rules come into place?
The new rules are set to come into place on Thursday 9 April 2020.
The FCA explained that consumers who need to use credit cards or overdrafts during the pandemic would not have their credit rating affected as a result. It also ruled that these extra measures would not let banks off from following existing rules in place for dealing with customers who are financially struggling.
FCA interim chief executive, Christopher Woolard, said, "Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK.
"If confirmed, this package of measures we are proposing today will help provide affected consumers with the temporary financial support they need to help them weather the storm during this challenging time."
However, the FCA added that “this guidance would not prevent firms from offering more generous assistance to their customers, and some already are.”
The regulator also explains that customers should still make regular payments as normal, if they can afford to do so.
The FCA said, "Where consumers can still afford to make payments, they should as normal and this is likely to be in their best long-term interest to continue to do so.”
‘Useful for some but must be treated with care’
Martin Lewis, founder of MoneySavingExpert.com took to Twitter to say, “NEWS: Everyone with a loan, an overdraft, a credit or store card or catalogue debt needs to read this.
“Huge regulator intervention, announced today, to help during coronavirus. Pls share…”
In a statement underneath he wrote, “This is yet another, important, welcome, yet unprecedented coronavirus-driven market intervention - this time by the regulator.
"We have already seen many unsecured lenders put some forbearance criteria in place, a few even more generous than the minimum standards the FCA is imposing – such as entire overdrafts at 0%.”
However, Mr Lewis added that “while the overdraft changes are unambiguously good, the move on loans, cards and catalogues is useful for some but must be treated with care.
"Payment holidays mean exactly what they say – you don’t pay, but you can still be charged interest. And with interest rates often high, especially on cards, that can mean storing up trouble for future. Those struggling for cashflow may have no choice, but if you don’t need to do it, don’t."