The coronavirus pandemic allowed members of the public a payment holiday on overdrafts, credit cards and other debts. This right ends next month, with new rules coming to replace it.
The new rules have been confirmed by regulators and will mean anyone struggling for money because of the coronavirus pandemic will not see their debt balloon.
Banks and other lenders will now be required to offer customers tailored support to stop debt spiralling. Methods of helping include scrapping interest payments and extending loan terms.
Who will benefit from the new rules?
The guidance covers users of credit cards, store cards and catalogue credit, as well as personal loans and motor finance. Holders of buy-now pay-later, rent-to-own, pawnbroking and high-cost short-term credit products are also eligible, as are those with overdrafts.
The current rules require banks to offer people who are struggling a payment holiday. This arrangement is set to expire on 1 November 2020.
The latest figures show there have been 1,085,000 credit card payment deferrals and 738,000 personal loan payment deferrals used by customers since the beginning of the pandemic.
No ‘one size fits all’ approach
The Financial Conduct Authority (FCA) interim chief executive Christopher Woolard has said that there should be no “one size fits all” approach taken by firms to help consumers get back on track.
He added, “For those who are still facing payment difficulty, or are newly in difficulty, as a result of coronavirus, we expect firms to offer a tailored package of support taking into account the ongoing situation and local or national responses to the crisis.”
The new guidelines
From 1 November, the FCA has said firms must:
Recognise the uncertainties and challenges that many customers will face in the coming months as the crisis develops, and provide tailored support which reflects their individual circumstancesWork with customers approaching the end of a payment deferral to provide support before they miss paymentsBe flexible and employ a full range of shorter and longer-term options to support their customers and minimise stress and anxiety experienced by customers in financial difficultyGive customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of timePut in place sustainable repayment arrangements which are affordable and take account of their customers’ wider financial situation including their other debts and essential living expensesPrevent customers’ balances from escalating once they have put in place a repayment arrangement by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happenRecognise and respond to the needs of vulnerable customers