The Financial Conduct Authority (FCA) has today proposed a range of targeted temporary measures designed as a stop-gap to quickly support users of certain consumer credit products who are facing a financial impact because of the exceptional circumstances arising from coronavirus.
The rules remind lenders that those in difficulties can generally ask for three months grace during the Corona emergency and although insurance companies are NOT mentioned in the guidance, it is likely that anyone on a pay monthly insurance plan can ask for a break, or deferral, due to financial hardship. In fact many will need a break in their monthly outgoings as they lose their job or business.
Where that leaves brokers and insurers who refuse, and then insist that payments are met or cover is withdrawn, is a tricky one. Maybe the industry needs to ask the FCA for clear, unequivocal guidance on that point.
This package is intended to complement measures already announced by the government to support mortgage holders (and renters) and the assistance being provided for furloughed employees and the self-employed.
Given these measures would span a wide variety of firms the FCA is conducting a brief consultation on our measures. However, given the national emergency and the significant impact on consumers’ finances right now, we have asked all stakeholders to respond within a much shorter timeframe than normal – with a deadline of 9am Monday 6 April 2020. If confirmed the measures would start to come into force by 9 April 2020.
- Set out the FCA’s expectations on firms to offer a temporary payment freeze on loans and credit cards where consumers face difficulties with their finances as a result of coronavirus, for up to three months.
- Ensure that for customers who have been hit financially by the coronavirus and already have an arranged overdraft on their main personal current account, up to £500 will be charged at zero interest for up to three months.
- Require firms to make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft changes came into force.
- Ensure consumers using any of these temporary measures should not have their credit rating affected because of this.
Christopher Woolard, Interim Chief Executive of the FCA, said:
‘Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK. If confirmed, this 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.’
If confirmed, these measures will provide a short-term, temporary stop-gap, for a period of up to three months. These measures would provide an expected minimum level of financial support for consumers who until now have been financially stable. They are not a substitute for our normal forbearance where that would be more suitable for a consumer in serious and immediate financial difficulty. Where consumers can still afford to make payments, they should as normal and this is likely to be in their best long-term interest to continue to do so.
Lenders do not have to put these measures in place until they come into force. It may take a short period of time for lenders to put in place arrangements to provide these measures. Consumers should not contact their lender yet unless their lender is already offering voluntary assistance. The FCA expects to make a further announcement about these measures next week.
This guidance would not prevent firms from offering more generous assistance to their customers, and some already are.
The measures we are proposing include:
Consumers who need additional financial support because of coronavirus with an existing arranged overdraft will be able to request from their provider that up to £500, on their main personal current account, is provided at 0% for up to three months. Alongside this customers without an overdraft on their main personal current account are able to request this facility.
Our previously announced overdraft rules come into force on 6 April. Firms can only charge a single annual interest rate for arranged and unarranged overdrafts. This will significantly reduce the cost of unarranged borrowing, also providing vital protection during this period. The end of fees and charges for borrowing means that all consumers will be clear about what they’re paying. Under the FCA’s rules over 7/10 consumers will be better off or no worse off. In some firms, even more consumers are due to benefit.
However, some firms have recently decided to increase their arranged overdraft prices. Over the next 90 days, firms would have to ensure all consumers are no worse off and not paying more than they would have paid under previous prices.
Credit cards, store cards and catalogue credit
Customers facing financial challenges due to coronavirus would be able to ask for a three-month payment freeze or to pay a nominal payment on credit cards, store cards and catalogue credit. Firms could consider other measures, such as reductions in monthly payments, if appropriate. In addition, customer cards would not be suspended during this period.
Customers with personal loans who face difficulties with their finances as a result of coronavirus would also be able to ask for a three-month freeze if needed.
Treatment of interest
With the exception of the £500 overdraft proposal, firms would be entitled to charge a reasonable rate of interest where a customer requests a temporary payment freeze. In the event that a customer requires full forbearance that interest should be waived.
Consumers in financial difficulty can also contact the Money and Pensions Service (MaPS) for further guidance.
The FCA will keep these measures under review.