Struggling customers need overdraft help
People struggling financially amid the coronavirus pandemic should not be charged interest on the first £500 of existing overdrafts for 90 days, the UK’s financial watchdog has proposed.
The Financial Conduct Authority (FCA) also suggested repayments on loans and credit cards should be frozen for up to three months for those in trouble. The FCA said the outbreak had caused an “unprecedented financial shock”. Experts suggest that support from banks at present is “patchy”.
In a timeframe reserved for emergency measures, the City watchdog is asking banks to respond to its proposed measures by Monday 6 April, and it wants them to come into force by Thursday 9 April.
After the FCA recently announced an “overhaul” for overdraft charges, many banks increased their charges for some customers and clustered around a similar figure of about 40%.
In its latest announcement, the watchdog said: “Over the next 90 days, firms would have to ensure all consumers are no worse off and not paying more than they would have under previous prices.”
Other measures it has proposed to help struggle borrowers include:
- A three-month repayment freeze on loans
- A temporary freeze on credit card and store card debt up to three months
- Zero interest for three months on up to £500 for customers affected by coronavirus using an arranged overdraft for up to three months
The FCA also said that consumers using any of these measures should not see their credit rating affected.
FCA interim chief executive Christopher Woolard said: “If confirmed, the 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.”
Some lenders have already put measures in place to assist people hit by the financial impact of the outbreak, but Martin Lewis, founder of Moneysavingexpert, described the picture as a “banking lottery”.
If approved, these proposals would bring a level playing field for borrowers. However, they would still need to contact their bank to access the help, rather than just stopping repayments.
“If you’re struggling to afford interest and debt repayments, don’t assume any of these things are in place until it’s confirmed by your bank. If you just halt payments without confirmation, you may end up being chased for payments and having charges added to your debt,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.