A credit card payments freeze could be extended for another three months for customers still suffering from the economic impact of coronavirus, the financial watchdog said today.
After imposing a three-month pause on repayments for those struggling amid the fallout of the pandemic on the economy, the Financial Conduct Authority (FCA) has said firms must offer more support to customers still enduring hardship.
That could involve a full freeze or reduced payments on their credit card or personal loans.
And those who have not yet frozen repayments, or who have an arranged overdraft of up to £500, can request a pause on payments until 31 October 2020 if they are experiencing difficulties.
“Since the coronavirus crisis began, we have made support available for those borrowers financially affected by the pandemic,” Christopher Woolard, interim CEO of the FCA, said.
“For those who are now in a position to restart payments, it will be in their best interests to do so. But for those who still need it, the package we are confirming today ensures there is help and further support.”
Those who can afford regular or partial payments should now do so, the FCA said. But banks and lenders should contact customers coming to the end of an agreed freeze to determine whether they can afford to repay.
Customers who have not had a payment freeze can request one until 31 October, and those who still cannot make repayments can extend theirs for another three months.
The FCA said payment freezes should not impact people’s credit ratings, but added lenders use other sources to determine credit worthiness.
The regulator also today declined to step in to prevent banks hiking overdraft fees by eye-watering amounts.
Banks will continue to be able to charge high interest rates on overdrafts after the scrapping of unarranged overdraft fees earlier this year. The FCA said there are enough alternatives for customers to turn to for cheaper borrowing rates.
“Lenders are committed to supporting customers through these tough times and the updated guidance from the FCA gives clarity on the next steps for those who continue to face financial difficulty during the ongoing pandemic,” UK Finance’s personal finance MD, Eric Leenders, said.
“The banking and finance industry has a clear plan to help the country through this unprecedented period and is committed to providing ongoing support to those customers who need it.”
However, law firm DWF warned the extension of the credit cards repayment freeze will hurt banks’ liquidity.
“The move raises concerns about how the industry itself will continue to cope on a financial basis,” partner John Perez said.
“In the motor finance market, we have seen new business in April reduce by 94 per cent compared to the same period last year. And in addition to this significant drop in new business, lenders will continue to have to take the hit on defaulting accounts, ensuring that they provide support and forbearance over and above usual standards. It’s a cost that will bite right into lenders’ bottom lines.
“The general economic outlook will mean that the cost to lenders in ensuring they meet the new temporary measures set by the FCA will place a significant strain on liquidity and profitability.”