A wide range of help across a broad range of consumer debts is being put into place.
“Consumer debts” are things like loans, credit cards, car finance, overdrafts and mortgages. They are all regulated by the FCA. This page doesn’t cover government debts or utilities – see Coronovirus – can’t pay bills and debts for what is happening with those.
On April 14 the FCA introduced a set of measures that offer help to many people whose income has been affected by Coronavirus. They apply to:
- unsecured loans (including logbook loans, guarantor loans and doorstep lending),
- credit cards and catalogues
A further range of measures came into force on 24 April:
- car finance;
- buy now, pay later deals; and
- payday loans.
The FCA has also proposed payment breaks on some insurances if you are paying monthly. This is expected to come in next week on 15 May.
The details differ but the direction of all of these initiatives is the same – proving very practical help through payment breaks to people whose finances have been hit by Coronavirus.
Who can get this help?
Anyone whose household finances have been affected by Coronavirus can ask for this help.
It doesn’t have to be you directly. If your partner has lost her job or another relative who pays the bills is on furlough you may be having to pay more of the household bills.
But you have to ask your lenders for the payment breaks. These breaks are not being given to everyone automatically. Your credit record will not be protected (see below) if you just stop paying.
The details for different types of debts
This includes guarantor loans and logbook loans but NOT payday loans, see below for those.
Lenders must offer a temporary payment freeze for up to three months. Interest will still be added during this time, it isn’t frozen.
If you have a guarantor loan, your guarantor will NOT be asked to pay if you have a payment break.
The rules don’t say how you will have to make up the missed payments. Your remaining payments could be increased or the term of your loan could be extended.
Credit cards, catalogues
Lenders must offer a temporary payment freeze for up to three months.
Interest will still be added during this time, it isn’t frozen.
Your account remains open, you can still buy things on credit if you are under your credit limit. But unless you are very sure you can quickly get back to “normal”, it is probably a good idea to put as little as possible on credit, or you may end up with an impossibly large credit card debt for years.
If you had received one of the warning letters about persistent credit card debt and were worried that your account would be closed, then getting a payment break agreed will stop this while the payment break continues.
The FCA says that
- banks should not charge interest on the first £500 of any arranged overdrafts;
- banks must ensure no customers with overdrafts are worse off because of the new charges coming into force in April.
Some banks are going further than this. For example, Nationwide says customers affected by Cornovirus can apply for a three month interest-free period on their overdraft.
Buy now pay later deals
One reader said:
I have an account with Very and have quite a large Buy Now Pay Later payment that’s due in June.
The FCA announced on 17 April yesterday when the customer is within the BNPL promotional period, the lender should extend the promotional period for 3 months.
So if this reader asks for a 3 month break, the end date of the deal should be pushed out to September.
These came in on April 24, see 3 month car finance payment breaks because of Coronavirus for details.
Before this some major lenders were already being helpful. As this newspaper article says:
car dealers have started rolling out support for struggling customers in order to avoid a wave of cars being handed back by buyers.
But some weren’t, only offering one month breaks, adding a charge for making an arrangement (which the FCA now says they can’t do) or suggesting that customer can Voluntarily Terminate their agreement.
Now the FCA has made it clear what will happen, all lenders should adopt this.
If you have a payment coming up that you can’t afford, phone your lender up now and ask for the three month break.
Payday loans – good news & bad news …
The rules for payday loans are different:
- the good news is that if you ask for a payment break interest will be frozen;
- the bad news is that will only be for a month, not the three months of help available for other sorts of debts.
See Coronavirus & payday loans – 1 month break with no interest which looks at why the FCA has taken this different approach and what you can do when the one month payment holiday ends. Because one month is going to be too short for most people!
Agreed payment breaks won’t affect your credit record
The FCA says that if a payment break, or reduced payment, are agreed with your lender, your credit records should not be affected by this.
This has confirmed what the credit reference agencies had already announced.
Lenders have to be fair about this. So if you had already asked your lender for a break a few weeks ago and your account has been marked in arrears, the lender should now go back and correct that.
If the lender has been very slow about setting up a payment break, you may have had to cancel your DD to stop a payment going out that you couldn’t afford. Here too the lender has to be fair – if they later agree the payment break your payment record should not be affected.
BUT … do you need more help eg for interest to be frozen?
These payment holidays do not freeze interest on your debts.
If you expect your finances will return to normal after a couple of months, that may be fine. You can resume making your loan repayments and start paying off your credit card where the balance will have gone up because of the interest added during the payment break.
But if you think it will take a long while for your income to return to its previous levels, or if you were already struggling before Coronavirus, you need to say you need more help than just a payment break, explain you need a longer-term payment arrangement, letting you make lower payments, possibly zero for a while, with interest being frozen.
Lenders have to offer this in addition to payment breaks. As the FCA said in its announcement about the payment breaks:
These [new] measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty.
Here “forbearance” is legal jargon for freeing interest and accepting lower payments.
Find out more here: How does a payment arrangement work & is one right for you?