What are the FCA’s proposals for ongoing support?

The FCA has outlined a range of measures which, if they are approved, it would expect to see from financial firms when the official coronavirus guidance ends on 31 October.

These expectations include:

The FCA is also suggesting that overdraft customers who received financial help should be contacted to see if this help is still needed. It will monitor firms to ensure customers are being treated fairly.

Any customers who require financial assistance after the guidance ends in October will see the help recorded on their credit file in accordance with the normal reporting process. The FCA says firms must make the implications of this clear to customers when they offer the support.

The FCA is taking comments on these proposals until 21 September.

The FCA’s borrowing relief measures

On 2 April, the FCA proposed a range of temporary measures to offer support to people struggling with their finances due to the coronavirus pandemic, which came into force on 9 April. The measures included:

On 1 July, the FCA confirmed how it wants the support to continue. From 3 July, credit firms must set out the following options to their customers experiencing financial difficulty due to COVID-19:

The FCA also confirmed that it will not extend the requirement for firms to make sure that overdraft customers were no worse off on price compared to prices they were charged before recent overdraft changes came into force. In April, the FCA had asked firms to temporarily reduce overdraft charges to reflect this requirement.

Instead, firms are now free to set their own interest rates on overdrafts, but customers with financial difficulties should be able to request support on additional borrowing in excess of £500.

What’s more, any firms that do choose to increase overdraft charges should give overdraft customers an opportunity to seek extra support before the changes come into force.

Motor finance and high-cost credit

On 24 April, the FCA confirmed further measures for motor finance and high-cost credit customers.

It states that car finance firms should provide a three-month payment freeze for those who are having temporary difficulties meeting finance or leasing payments on a vehicle and has said firms should not make ‘unfair’ changes to customer contracts.

Payday loan firms are being instructed to offer a one-month interest-free payment freeze to those who have been financially impacted by the coronavirus outbreak, along with three-month payment freezes for those signed up to pawnbroking, rent to own (RTO) and buy now, pay later (BNPL) agreements.

On 15 July, the FCA confirmed how it wants the support to continue. From 17 July, credit firms must set out the following options to their customers experiencing financial difficulty due to COVID-19:

Which providers are offering payment holidays for personal loans?

What are credit card providers doing to help?

In the table below, we set out how banks are changing their overdraft policies to help customers.

UK Finance figures released on 17 July reveal that over the past three months more than 27million customer accounts have been offered three months of interest-free borrowing on the first £500 of their arranged overdrafts.

How will payment holidays affect your credit score?

The FCA says lenders should ensure the temporary measures don’t impact credit reports and scores.

Meanwhile, the UK’s three main Credit Reference Agencies (CRAs) have pledged to protect credit scores during the coronavirus pandemic.

Experian, Equifax and TransUnion have agreed to an ‘emergency payment freeze’, with new guidance which ensures an individual’s credit score is not affected over the duration of the agreed payment holiday.

This will freeze anyone’s credit score whenever someone agrees to a temporary payment arrangement with a lender or credit provider. 

The emergency payment freeze can apply to mortgages, loans, credit and store cards, plus catalogue credit, and will cover a payment holiday as well as reduced payments or increased credit limits.

However, you must not simply cancel your direct debits or fail to pay your bill – there must have been an agreement with your lender. 

Taking it upon yourself to stop paying something such as your mortgage or credit card bill will mean a missed payment default is recorded on your credit report, which will harm your credit score. 

The government has brought forward emergency legislation to protect tenants from eviction.

The reforms mean that from 26 March until at least 30 September, landlords must provide three months’ notice in advance of starting proceedings to evict private or social tenants.

The courts have also taken measures to suspend all proceedings for, and enforcement of, possession orders for a period of 90 days from 26 March.

Using cash and making payments by card

There have been reports of some retailers refusing card payments because of fears the virus can be spread by notes and coins.

In a Which? survey of 2,003 people conducted in March 2020, 15% told us their local shop stopped accepting cash as a payment.

Early media reports suggested the World Health Organization (WHO) warned against using cash – a claim it later denied.

The Bank of England has said: ‘Like any other surface that large numbers of people come into contact with, banknotes can carry bacteria or viruses.’ So it’s fair to say that cash is safe to use as long as you wash your hands thoroughly after touching it.

With more than 2.2 million people in the UK reliant on cash, there are fears that the coronavirus restrictions could leave them struggling to pay for the essentials. 

Reduced bank branch openings

Several banks have announced that they will be operating reduced opening hours as well as imposing social distancing measures in their branches.

Many are therefore advising that you only visit a bank branch if absolutely necessary and are encouraging people to use their online banking and app services instead.

Universal Credit and other benefits

The government has introduced a number of temporary measures to help workers who have to take time off work to self-isolate.

Which? calls for extension of COVID-19 financial support

We’re calling for the financial regulator to extend its help for consumers facing financial difficulties due to COVID-19 into 2021.

Our submission to the FCA recommends the following protections to prevent households facing a financial cliff edge when payment holidays, interest-free overdrafts and the furlough scheme come to an end.

Gareth Shaw, head of money at Which?, says: ‘The regulator has acted quickly and effectively to help those struggling due to the pandemic, but it must be prepared to take further bold action to prevent millions of people from being hit by a perfect storm of financial pressures in the coming months.

‘The huge number of payment holidays taken highlights the scale of financial difficulty people in this country are facing – a situation that is likely to become worse as support measures such as the furlough scheme come to an end.

‘The regulator must treat all consumers fairly – ensuring that financial support is still provided to those who need it and also available for those who may face financial problems for the first time after 31 October.’

Which? news and advice on coronavirus

Experts from across Which? have been compiling the advice you need to stay safe and make sure you’re not left out of pocket.