Coronavirus: How will FCA plans help people with overdrafts or credit card debt?

‘Coronavirus has caused an unprecedented financial shock,’ says FCA spokesperson

The coronavirus pandemic has resulted in the nation having to acclimatise to a new way of life, as people attempt to go about their daily routines as smoothly as possible.

However, the consequences of the outbreak have been particularly disruptive for some, resulting in them being unable to work and thus affecting their financial stability.

The Financial Conduct Authority (FCA) recently proposed the implementation of a variety of temporary “stop gap” measures, that can provide support for members of the public who use certain consumer credit products.

So how may this proposed temporary relief help people who have overdrafts?

One of the temporary measures proposed by the City watchdog would allow customers who have overdrafts to request zero-interest buffers of up to £500 over the course of three months.

This means that for people who already have arranged overdrafts on their main personal current accounts, they would be charged zero interest on up to £500 for a three-month period.

Martin Lewis, founder of MoneySavingExpert.com, said the overdraft change as part of the proposed measures is “especially important” given the current climate.

“In a terror of timing, by next Monday — the start of the tax year — almost all lenders were due to be charging about 40 per cent EAR (equivalent annual rate) on overdrafts,” he said.

“This is nearly double that of high street credit cards. That made overdrafts the new danger debt. This change would reverse that at least in the short-term, both with the new minimum £500 interest-free, but also because it’s required that no one will may more than they used to due to the changes.”

What about customers who don’t have overdrafts?

Customers who do not have overdrafts on their main personal current accounts would be able to request this facility and therefore also take advantage of this measure as well.

What other temporary measures have been proposed?

Other measures that have been put forward by the FCA include allowing customers to ask their banks to freeze payments of their credit cards and personal loans for three months if they are struggling to repay them amid the Covid-19 outbreak.

However, during the repayment holiday, customers would still accrue interest on their credit cards, which they would have to repay in the future.

Customers would also be able to request to pay a nominal payment on credit cards, store cards and catalogue credit, the FCA said.

When will the proposed measures be reviewed?

The measures put forward by the FCA were approved on 9 April following a brief consultation process.

Christopher Woolard, interim Chief Executive at the FCA, said: "We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic. The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.

"Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.

"We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week."