CREDIT card borrowers will be offered lower repayments if they’re still financially struggling following a payment freeze.
Under new proposals published by the financial regulator today, firms will also have to give affected customers longer to pay off £500 interest-free overdrafts.
Lenders will be expected to offer the additional help to those who continue to be negatively impacted by the coronavirus crisis.
The majority of lenders have already been offering payment holidays for an initial three-month period, depending on the circumstances of the individual.
But with this three-month period coming to an end, firms should now contact customers to find out if they can continue to make repayments after their payment holiday.
If they’re still struggling, help should then be offered for an additional three months after a payment freeze has finished.
It comes as new figures from trade body UK Finance show that 1.2million people had been given a payment holiday on their credit cards and loans, as of last month.
Here’s what the Financial Conduct Authority (FCA) has proposed:
Firms have until June 22, 2020, to get back to the FCA on its proposals.
The FCA then expects to start enforcing the new guidance “shortly after”, with a start date to be confirmed once the measures have been finalised.
If approved, the guidance will apply to credit cards, store cards and catalogue credit, personal loans, and overdrafts.
It won’t apply to consumer credit products, such as car finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later.
Christopher Woolard, interim chief executive at the FCA, says the new measures will offer additional support for customers who need it.
But he adds that those who can make repayments should continue to do so as otherwise they’ll end up owing more in the long-run.
Mr Woolard said: “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency.
“The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus.
“Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”
Any payment freezes that get approved by lenders won’t have an impact on the credit file of borrowers.
This has always been the case throughout the coronavirus crisis, as credit reference agencies have an emergency payment freeze agreement in place.
But taking out a new overdraft or increasing your existing overdraft limit aren’t covered by this, which means this information is likely to be passed onto credit reference agencies as usual.
And while a payment holiday won’t impact your score, it may harm your chances of getting credit in future.
MoneySavingExpert also found that taking a payment break could stop you from getting a mortgage in the future.
This is because many lenders rely on more than just your credit score when considering whether or not to give you a loan.
Consumer expert at Experian, James Jones, previously told The Sun that one new application alone shouldn’t impact your score, but he advises being careful of making multiple applications in a short time frame.
The latest announcement from 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.
This action has now been pushed back to October at the earliest.