Out-Law News | 15 Apr 2020 | 10:47 am | 1 min. read
The Financial Conduct Authority (FCA) has said it expects finance firms to provide immediate support to customers struggling to meet debt repayments due to the Covid-19 outbreak.
The guidance is relevant to households whose income has reduced due to coronavirus. It will not apply where a customer was already in financial difficulty.
Firms following the guidance can give support including suspending credit card or loan payments for three months. Finance firms can continue charging interest on any loans, but cannot charge payments for arranging the deferral. There should be no detrimental effect on a customer's credit rating.
Banks can offer interest-free overdrafts of £500 for up to three months to customers who request them.
Finance firms' websites now need to make it clear that these special measures are available to customers experiencing difficulties with their finances due to the impact of coronavirus.
Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said: "The speed with which the FCA consulted and then issued this guidance will have been welcomed by many firms that were grappling with the issues of payment holidays for customers impacted by Covid-19."
"The guidance provides clarity on a number of matters firms have been uncertain about, such as whether they could continue to charge interest during a payment holiday and still be seen to be treating customers fairly," he said. "For credit card providers the proposed changes to the rules on minimum payments and persistent debt are also welcome, removing two hurdles that were blocking firms from taking swift action."
"However, the guidance does not resolve all the issues a firm will need to address when offering a payment holiday. They are still going to have to consider the requirements in the Consumer Credit Act such as those around modifying agreements and ensure that any changes to the agreement don’t impact on its enforceability," he said.
The FCA only briefly consulted on the proposed package of measures, given the significant and immediate impact of the pandemic on consumers. The guidance is not relevant other than in circumstances related to coronavirus. It will be reviewed by the FCA in the next three months. More information is available on the FCA website.