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Coronavirus: Loan and credit card payments set to be frozen Coronavirus: Interest-free overdraft plan for struggling borrowers
(about 1 hour later)
People struggling with loan repayments and overdraft fees amid the coronavirus pandemic will be granted temporary relief under new proposals. People struggling financially amid the coronavirus pandemic should not be charged interest on the first £500 of existing overdrafts, the UK's financial watchdog has proposed.
The Financial Conduct Authority is asking banks to freeze payments on loans and credit cards for up to three months for those facing difficulties. 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 City watchdog also wants interest on the first £500 of existing overdrafts to be frozen for a period. The FCA said the outbreak had caused an “unprecedented financial shock”.
The FCA said the outbreak had caused an “unprecedented financial shock” Experts suggest that support from banks at present is "patchy".
The watchdog is asking banks to respond to the proposed measures by Monday 6 April, and it wants them to come into force by Thursday 9 April. Quick change
After the FCA recently announced an "overhaul" for overdraft charges, many banks increased their charges and clustered around a similar figure of about 40%. 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."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 include: Other measures it has proposed to help struggle borrowers include:
The FCA also said that consumers using any of these measures should not see their credit rating affected.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."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."
Don't stop paying now
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.
Contacting banks can be frustrating at present, with long queues, but information is also available on lenders' websites.
Apart from the zero interest on £500 of arranged overdrafts, firms would be entitled to charge a "reasonable rate of interest" when a customer requested a repayment holiday on loans, credit cards, and store cards.
Mr Lewis said: "Payment holidays mean exactly what they say - you don't pay, but you can still be charged interest. And with interest rates often high, especially on cards, that can mean storing up trouble for future.
"Those struggling for cashflow may have no choice, but if you don't need to do it, don't."
Banks are already offering three-month mortgage repayment holidays for some struggling customers.