LONDON (Reuters) – British consumers will benefit from a three-month freeze on loan and credit card payments to deal with the coronavirus outbreak, under plans presented by the country’s financial regulator on Thursday.
The ‘palliative’ package complements the aid measures already announced by the government to support mortgage holders, furloughed staff, tenants and the self-employed. It includes promises to cut interest rates on arranged overdrafts of up to £500 to zero, for up to three months.
The Financial Conduct Authority said it was conducting a brief public consultation until next Monday and the measures are expected to come into effect on April 9.
The rapid rule changes come after 950,000 people in Britain applied for Universal Credit benefits in the two weeks since the government asked people to stay at home.
“These measures would provide a minimum level of expected financial support to consumers who until now have been financially stable,” FCA acting chief executive Christopher Woolard said.
“Where consumers can still afford to make payments, they normally should, and it’s probably in their long-term interest to continue to do so.”
The guidelines would not prevent companies from offering more generous assistance to their customers, and some are already doing so, Woolard said.
Banking industry body UK Finance said proposed changes to FCA rules should enable lenders to provide additional support to their customers.
The FCA, which oversees banks and credit providers across Britain, also said consumers using any of these temporary measures should not see their credit rating affected.
“There’s no clarification on what’s going on with hire purchase or conditional sale, which most cars are financed on,” said Bill McCaffrey, head of consumer credit at law firm CMC. .
The FCA wanted to deal with pressing issues such as loans and credit cards first, as any action on auto finance would require bespoke solutions that would take longer to work out due to specific features such as “payments lump sums”.
The FCA said it would make another, unspecified announcement next week on its measures.
The card payment freeze applies to credit, store and catalog cards, allowing customers to request a stop on all payments for three months or make a nominal payment. The cards would not be suspended during the three month period.
Customers with no overdraft on their main personal checking account can apply for one, the FCA added.
Lloyds Banking Group said it welcomed the FCA guidance and since the start of the pandemic it has helped thousands of customers using the temporary support measures already introduced.
Martin Lewis, founder of consumer champion MoneySavingExpert.com, said it marked an unprecedented intervention by regulators and would end a so far “banking lottery” or patchy help from lenders for customers affected by the pandemic.
“Payment holidays mean exactly what they say – you don’t pay, but you may still be charged interest,” Lewis said.
“And with often high interest rates, especially on cards, that can mean piling up problems for the future. Those struggling to make money may have no choice, but if you don’t need it, don’t.
The package will likely put even more pressure on banks, already inundated with a record volume of calls from worried customers.
“It’s a lot harder to get on the phone right now,” said Sarah Coles, personal finance analyst at fund supermarket Hargreaves Lansdown.
Reporting by Sinead Cruise and Huw Jones; Editing by Pravin Char and Ed Osmond