On 24 April 2020 the FCA published its guidance for payday lenders on customers with Coronavirus difficulties.
With other types of credit, customers can have three month payment breaks but interest continues to be added during these breaks. This applies to mortgages, unsecured loans and credit cards, and car finance.
But the FCA has taken a very different approach with payday loans.
The bad news – you can only have a one month payment break, not three months.
The good news:
- the lender can’t add any interest during this time;
- you can then repay the missed month in an affordable way, eg by making smaller payments over several months;
- this won’t affect your credit record.
If your lender says the missed payment will be spread over the rest of the term and doesn’t offer to extend the term, go back to your lender and quote this from the FCA’s guidance:
The firm should allow the customer to repay the deferred payment over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan.
Why not the normal 3 month break?
The FCA hasn’t said why it has not followed what is now the standard approach for other sorts of credit.
Some of the possible reasons include:
- some payday loans are very short term agreements, only lasting a month;
- feeling it would be unfair to the customer to continue to add the incredibly high levels of payday loan interest for one month, let alone three;
- feeling it would be unfair to the lender to have to provide three months payment breaks with no interest added;
- recognising that many payday loans would hit the price cap very soon in a three month payment break with interest added.
So perhaps “one month, no interest” was seen as a fair compromise.
One month is too short to be of much help!
A few people’s coronavirus problems may be all resolved in a month.
But for a lot of people they won’t be:
- after redundancy it may take time to find another job;
- if you are let out of lockdown, will your company take you off furlough? will your children be back at school?
- if you are self employed, how long will it take to get money coming in again?
Three months feels like a more realistic timescale for a break and to reconsider your position at the end.
After only one month, a lot of people will have no idea when they can start to make the high repayments to payday loans.
So grab the one month break and then ask for more help
If you know you have problems it makes sense to ask for this one month break.
It may well not be long enough, but it’s on offer and there are no downsides to taking it.
Then talk to the lender again after a month.
Unless your coronavirus problems have been sorted, the best thing then could be a payment arrangement:
- you make a lower, affordable payment each month and no more interest is added;
- at the start the affordable payment could be a token £1 a month. then you could later increase that when things return to normal;
- this would affect your credit record but you are then in control of your finances.
If you have a lot of debts, talking to StepChange about a debt management plan may be better than trying to talk to all your lenders.
And if you don’t think things will ever get back to normal, StepChange can help you look at your other options.
Also make an affordability complaint?
Lenders have to consider if a loan is affordable for you – can you repay it without hardship, getting behind with bills or having to borrow again?
If this loan is small and you have only had one or two from the lender, then the lender doesn’t have to check carefully. But if the loan is large or you have borrowed several times from this lender, look at whether you can make an affordability complaint and get a refund of the interest that you have paid. These are described, with a template letter, here: How to ask for a payday loan refund.
You can ask for a payment break now and also put in an affordability complaint. You don’t have to choose which to do.