FCA proposes extended COVID-19 credit card debt relief

People with credit card debt who face continuing financial difficulties due to coronavirus after the present payment freeze ends, could benefit from new proposals announced today by the Financial Conduct Authority.

At present people can ask for a three month payment freeze on instalments due – though this does not prevent interest continuing to build up. The new proposals, currently in draft, outline the support firms would be expected to provide those with credit card and similar debts, such as store card and catalogue credit, as well as personal loan customers coming to an end of a payment freeze, as well as those who are yet to request one.

For customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, the time to apply for one would be extended until 31 October 2020.

For those who have already taken up support and are still experiencing temporary payment difficulties due to coronavirus, firms would continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.

The proposals include:

• At the end of a payment freeze, firms should contact their customers to find out whether they can resume payments – and if so, agree a plan on how the missed payments could be repaid. If customers can afford to return to regular repayment, it is in their best interest to do so.
• Anyone who continues to need help gets help – for customers still facing temporary payment difficulties as a result of coronavirus, firms should provide them with support by reducing payments on their credit card and personal loans to a level they can afford for three months.
• Overdraft customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, would be able to request up to £500 interest-free for a further three months, with further support in the form of lower interest rates on borrowing above the interest-free buffer and repayment plans for those who would benefit from them.
• Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files are not the only source of information which lenders can use to assess creditworthiness.

When implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and should consider how they engage with them. Firms should also help customers understand the types of debt help and money guidance that are available and encourage them to access the resources that can help them.

The proposals do not apply to other consumer credit products, such as motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later, which are covered by separate guidance which will be updated soon.

The FCA welcomes comments on these proposals until 5pm on 22 June 2020 and expects to finalise the guidance shortly afterwards.

Christopher Woolard, interim chief executive at the FCA, 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."