Banks to offer credit card and loan payment holidays and £500 interest-free overdrafts to struggling customers
BANKS have been ordered to give struggling credit card and loan customers a break from payments under new new proposals announced today.
The Financial Conduct Authority (FCA) has demanded banks also offer £500 interest-free overdrafts to customers who have been hit financially during the coronavirus crisis.
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The temporary measures would see repayments on credit cards and loans paused for up to three months.
Firms could also be asked to consider other ways to help borrowers, such as reductions in monthly payments.
Interest will still be charged on accounts as long as customers can afford it.
Banks have until next Monday to respond to the FCA about the plans.
The new measures have been brought in following criticism that banks aren't doing enough to help small businesses and customers.
Yesterday, banks were warned by Business Secretary Alok Sharma that they needed to step up and help bail out small businesses - more than a decade after they were saved during the financial crisis.
It comes after a warning that one million firms face being shut down as banks refuse healthy firms vital loans.
Today, the FCA has ordered banks to:
- Give 0 per cent overdrafts for up to three months for upto £500
- Three month payment freeze or reduction on credit cards, store cards and catalogue credit
- Customers can request a three-month payment freeze on loans
- Interest will still be charged on debt, unless a customer cannot pay it
The measures announced today, if agreed, will provide a short-term, temporary stop-gap for struggling households and will come into force from Thursday April 9.
The FCA also confirmed that credit scores will not be impacted and credit cards cannot be suspended due to the new rules.
It'll be up to banks and lenders to decide who gets the additional support.
The package would be on top of measures already announced by the government to help households, including mortgage and rent payment holidays.
But the three-month payment freeze on loans doesn't extend to high-cost credit loans, such as payday loans, guarantor loans, and doorstep loans.
Here, you'll still need to contact your lender directly to see how it can help.
The FCA says lenders can offer repayment holidays, waive interest or charges, or allow token repayments.
What help is already being offered by banks?
HERE'S what banks are doing to help customers during the coronavirus crisis:
- Barclays: Waiving interest fees from Friday March 27 until end of April. Barclays customers can apply for a three-month payment holiday on their mortgage. They can also switch mortgages from repayment to interest-only, as well as applying for a temporary increase on their credit card limit. Penalty charges to access fixed savings accounts early have also been removed.
- Co-op Bank: The bank can waive overdraft fees and review interest rates for some customers. The Co-op bank says that it has a range of measures that can help customers on a case by case basis.
- First Direct: First Direct has announced a £250 interest-free overdraft. 39.9 per cent for arranged overdrafts. The bank is also giving customers early access to fixed rate savings accounts without closure charges, as well support for customers with unsecured debt by offering breathing space, tailored to individual customer need. Customers can apply for an increase in credit card and overdraft limits and the option to extend the remaining term of their mortgage or switch their rate.
- Halifax: Customers can get a £300 interest-free overdraft from April 6 until July 6. 39.9 per cent after £300 from April 6. The lender has announced it won't charge for missed payments on credit cards, loans and mortgages. Payment holidays on mortgages and loans also being offered.
- HSBC: HSBC is offering a £300 interest-free overdraft available from March 27, otherwise 39.9 per cent. HSBC is offering three-month mortgage holidays to customers who need it, as well as reduced payments. There’s also an option to extend the remaining term of the mortgage, switch rates or switch part or all to interest-only mortgage arrangements. Personal loans and credit cards can be deferred by up to three months. Customers can also get early access to fixed rate savings accounts without closure charges.
- Lloyds TSB: Customers can get a £300 interest-free overdraft from April 6 until July 6. 39.9 per cent after £300 from April 6. It's also paused fees for missed payments on credit cards, loans and mortgages. Payment holidays on mortgages and loans are being offered to customers who need it.
- Metro: Metro bank is offering temporary relief on overdraft charges, although the bank is also increasing interest on arranged overdrafts to 34 per cent in April. Metro Bank says that customers can get in touch if they are struggling and it will try to help.
- Nationwide: Can waive fees and review overdraft interest rates for some customers. Otherwise 39.9 per cent. Nationwide customers can apply for a three-month mortgage break, as well as the option to switch your current deal or change the length of your term. You can also request a three-month break on your personal loan and credit card payments, or a holiday on your overdraft fees for up to three months.
- NatWest/ RBS/ Ulster Bank: Freezing overdraft rates for three months at 19.89 per cent. It had been due to double to 39.49 per cent by April 2. Mortgage and loan repayments can be paused for up to three months. Customers can also apply for refunds on credit card cash advance fees, as well as an increased temporary credit card limit.
- Santander: Customers can get a £350 interest-free overdraft for three months from April 6 for customers who already have an agreed overdraft. 39.9 per cent after April 6 after £300. The bank will look at each customer’s situation and will explore ways to support them depending on their specific circumstances. Support for customers can include the option to defer or reduce repayments that are due.
- Starling: Starling is waiving all interest charges on arranged overdrafts if in financial difficulty. For customers with no arranged overdraft, Starling is removing the interest rate and the maximum monthly charge.
- Tesco Bank: Tesco Bank is offering a payment break of up to two months for credit card and loan customers. Customers can also apply for extra help by contacting the bank but it'll decide who it supports on a case by case basis.
- Virgin Money (Clydesdale Bank/Yorkshire Bank): Customers can apply for mortgage payment holidays where necessary, as well as debt restructuring plans. The lender is also offering remporary increases in credit.
Christopher Woolard, interim chief executive of the FCA, 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."
The FCA says customers shouldn't contact their bank or lender about the extra help until it has been confirmed.
It expects to make a further announcement next week.
Where customers can still afford to make payments, they should continue to do so, the FCA says.
How to cut the cost of your debt
BEING in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your money
Work out your budget - by writing down your income and taking away your essential bills such as food and transport.
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay.
Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Groups and services like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
Martin Lewis, founder of MoneySavingExpert.com, said: “This is yet another, important, welcome, yet unprecedented coronavirus-driven market intervention – this time by the regulator.
“It’s important to remember all of this is a consultation, done urgently, ending next Monday with changes enacted on Thursday.
“Having said that, my suspicion is the consultation is just a formality, following process, and this’ll be put in place relatively unchanged.”
But speaking on Good Morning Britain this morning, Martin advised customers to only consider a payment holiday if they absolutely need it, as interest can still continue to build up.
He said: "A payment holiday is exactly what is says it is. You won't have to pay.
"But it doesn't mean they can't charge interest and it's likely they will.
"So by not paying your credit cards, store cards and loans, that interest will continue to build up."
Citizens Advice made a similar warning and said the measures are only a short-term fix.
Customers could also find themselves slapped with high interest rates after the three months, said Dame Gillian Guy, chief executive of Citizens Advice.
She added: "Another major concern is that these protections don’t seem to cover the most vulnerable borrowers, such as those with payday loans."
Responding to the announcement, UK Finance said all lenders are ready to support customers who are suffering financially due to coronavirus.
The trade association added that it's been discussing with regulators about how banks can provide further help for their customers.
Under previous changes already announced by the FCA, banks will also be banned from charging unarranged overdraft fees from April 6, although they can still charge interest rates.
Credit card users who only make minimum repayments each month are also being given more time to get out of persistent debt after the FCA suspended new rules that were due to come into force last month.
Previously, credit card holders who regularly struggle to make repayments were told they faced having their cards cut off starting in March if they failed to respond to warnings from their lender.
This action is now being pushed back until October.
MORE ON MONEY
We've rounded up which banks are giving mortgage holidays and bigger overdrafts if you’re struggling due to coronavirus.
Plus, here's what other help is available if you can’t pay your rent this week.
Here's some more information about what to do if you lose your job due to coronavirus.
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