PAYMENT holidays and interest-free overdrafts for struggling payday loan and overdraft borrowers are to end on October 31.
The financial regulator has today confirmed it expects the measures, which it set out earlier this year following the coronavirus crisis, to end next month.
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Instead the Financial Conduct Authority (FCA) proposed new support, which says lenders should give users tailored help from November depending on their individual circumstances.
Lenders initially offered payment holidays for a three-month period, but this was then extended for another three months in June.
The FCA said that although the majority of consumers will start to resume payments in full from November, many will remain in financial difficulty.
Users of credit cards, personal loans, car finance, and high-cost credit such as payday loans currently have until October 31 to apply for a payment freeze.
Meanwhile, overdraft users can apply for a £500 interest-free buffer by the same date.
If you apply ahead of the deadline, the support will be available until January 31, 2021.
If you don’t, we’ve rounded up the new proposed support measures below:
The proposals will now be consulted on with the industry given until 10am on September 21 to comment.
Christopher Woolard, interim chief executive at the FCA, said: “Our proposals are designed to help people who have been facing payment difficulties because of the pandemic get back on track with tailored support from firms.
“For those who can restart payments, it is in their best interests to do so.”
Richard Lane, director of external affairs at charity StepChange, added: “While we welcome the broad thrust of this new guidance, we have concerns that it leaves open the risk of different lenders adopting very different approaches, leaving customers caught in something of a lender lottery in terms of how their ongoing problems may be managed.
“We need to understand how lenders will implement the guidance in practice, but we welcome the strong signposting to debt advice that the FCA flags as an appropriate measure that lenders should put in place.”
While Eric Leenders, managing director of personal finance at trade body UK Finance, said: “Lenders stand ready to offer tailored support and flexibility to those who continue to face financial difficulties and will be working closely with the Financial Conduct Authority.
“It is vital that those who are experiencing payment difficulties get in touch with their provider and make use of the online support available as soon as possible to discuss the options available to them.”
As of May 21, lenders had approved almost 1.5million payment holidays on credit cards and personal loans, according to UK Finance.
It’s not yet clear how many customers have claimed interest-free overdrafts of £500.
Under the proposals, any extra support from November will be reported to credit referencing agencies following a freeze on this information being applied to reports.
In March, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn’t see their credit score impacted.
Taking a payment break is usually reflected in your credit score, which lenders use to assess how risky you are as a borrower.
Taking out a new overdraft or increasing your existing overdraft limit was never covered by this though, which means this information has likely already been passed onto credit reference agencies.
A bad score can affect whether future credit applications are accepted, how much interest you pay and how much you can borrow.
If you’ve taken a payment holiday on high-cost credit, such as a payday loan, you’ll be pleased to know that the help will be available up until January 31 as long as you apply by the October 31 deadline.
If you’re still in financial difficulty after this, you should speak to your lender about your options.
Just keep in mind that any extra help will be marked on your credit score.
If you’re no longer struggling financially, you’ll be expected to resume payments as previously agreed.
If you’re able to, you should pay off your existing overdraft ahead of the January deadline or you may be charged fees.
But if you still need support, your bank may reduce or waive the interest.
The FCA said firms shouldn’t reduce the credit limit, suspend or remove the overdraft facility for a customer if that would cause further financial hardship.
If you’re looking for a new overdraft or an increased limit, you’ll need to apply to your bank in the usual way, which will be subject to a credit check.
The FCA said these credit checks can look beyond current stressed circumstances if it’s reasonable to expect the customer’s financial position will improve.
If you don’t need the support to get by, you shouldn’t rush to apply for it ahead of the deadline.
Payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
A payment break doesn’t remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up, meaning you’ll be in debt for longer.
If you think you need to take one, you should speak to your lender to discuss your options.
Alternatively, if an interest-free overdraft will help you get by, contact your bank for help.
Typically you’ll need to apply for an overdraft if you don’t already have one, and this involves a credit check.
The latest measures by the FCA comes after the regulator agreed to suspend plans to cut off credit cards for Brits who are persistently in debt.
Previously, credit card holders who regularly only made minimum repayments faced having their cards cut off starting in February if they failed to respond to warnings from their lender.
At the time, this action was pushed back to October at the earliest.