In response to the economic fallout from the coronavirus pandemic, the Financial Conduct Authority (FCA) has unveiled a set of new rules aimed at providing financial assistance to those affected. These measures, which came into effect on 9 April 2020, offer a temporary payment freeze on credit cards and loans, as well as interest-free overdrafts on current accounts.
What Are the New Financial Relief Measures?
The FCA has introduced several key measures to help individuals facing financial difficulties due to the COVID-19 outbreak:
- Temporary Payment Freeze: Banks are expected to offer a three-month payment holiday on loans and credit cards for customers negatively impacted by coronavirus. It’s important to note that these payment holidays are not interest-free, so while they may provide short-term relief, interest will continue to accrue.
- Interest-Free Overdrafts: Customers who are struggling financially can request an interest-free overdraft of up to £500 on their main personal current account for three months.
- Overdraft Pricing Protection: The FCA has mandated that all overdraft customers should not be charged more than they would have been before recent overdraft pricing changes came into force.
- Credit Score Protection: Consumers utilising the temporary payment freeze will not have their credit files affected.
How to Access Financial Assistance
It’s crucial to understand that these measures are not automatically applied to all customers. If you’re experiencing financial difficulties due to the coronavirus crisis, you’ll need to reach out to your bank or lender to request assistance in order to benefit from the temporary payment freeze and the other options as described above.
The FCA advises customers to:
- Check their bank’s website or social media channels for information
- Use online services where possible to reduce pressure on call centres
- If telephone contact is necessary, wait until after the Easter weekend if possible
Important Considerations
While these temporary payment freeze measures offer much-needed relief for many, it’s essential to approach them with caution:
- Interest Accrual: Although payment holidays provide temporary relief, interest will continue to accumulate during this period. This means you’ll end up paying slightly more overall.
- Careful Consideration: If you’ve experienced a significant drop in income and genuinely need the payment holiday, it’s a valuable option. However, if your income hasn’t been severely affected, think carefully before requesting one.
- 0% Credit Card Deals: In a welcome move, the FCA has confirmed that customers with 0% credit card deals won’t lose their promotional rate if they take a payment holiday.
Additional Financial Support
The FCA’s guidance also extends to other types of credit, including:
- Guarantor loans
- Logbook loans
- Home collected credit
- Loans from community development finance institutions
- Some loans issued by credit unions
However, it’s worth noting that these measures don’t currently apply to car finance, payday loans or other short-term credit. The FCA is expected to make further announcements regarding car finance soon.
Implementation Timeline
While these new rules officially came into effect on 9 April 2020, banks have until 14 April 2020 to fully implement all the changes. This means that in the interim period you may still be charged higher overdraft fees than before. It’s unclear whether these extra charges will be retrospectively refunded once the new temporary payment freeze rules are fully implemented.
Seeking Financial Advice
If you’re unsure about whether to take advantage of these temporary payment freeze options, it’s advisable to carefully review your budget and financial situation. Consider seeking advice from a financial professional or a free money advice service to make an informed decision.
What’s Next?
The FCA has acknowledged that there’s still more work to be done to support consumers in other parts of the credit market. They’ve promised to announce further measures in the future, including support for the motor finance sector.
In these tricky times it’s crucial to stay informed about the financial support available to you. While these temporary payment freeze measures can provide much-needed relief they should be used judiciously. Always consider your long-term financial health when making decisions about payment holidays or other forms of financial assistance.
If you’re facing financial difficulties don’t hesitate to reach out to your bank or lender. They are now equipped with these new tools to help you navigate through this unprecedented crisis. Stay safe, stay informed and make the most of the financial support available to you during these challenging times.
