Coronavirus: Banks told to offer interest-free £500 overdrafts and waive credit card payments

Credit card and loan repayments to be frozen for customers in financial difficulty as pandemic causes unemployment to soar

Banks have been told to allow customers an extra £500 interest-free on their existing overdrafts to help people who are struggling financially during the coronavirus outbreak.

They have also been ordered to freeze payments on credit cards and loans.

The City watchdog is proposing a range of measures that could be introduced as soon as next Thursday, to help those finding it difficult to make repayments on their debts.

Banks had already been under scrutiny from the Financial Conduct Authority over their approach to overdraft interest rates, which are around 40 per cent for most high street lenders – roughly double the cost of an average credit card.

More people are likely to have to use their overdraft during the crisis.

The Department for Work and Pensions revealed this week that it had received 950,000 claims for Universal Credit in just two weeks.

Under the FCA’s plans, customers can ask their bank to freeze payments on their credit cards and personal loans if they are having trouble repaying because of coronavirus.

However, consumers will still accrue interest on their credit cards during the repayment holiday, which they will have to pay off at some point.

Martin Lewis, founder of MoneySavingExpert.com, said: “This is yet another, important, welcome, yet unprecedented coronavirus-driven market intervention – this time by the regulator.

“We have already seen many unsecured lenders put some forbearance criteria in place, a few even more generous than the minimum standards the FCA is imposing – such as entire overdrafts at 0 per cent.

“However the provision is patchy and has become a banking lottery; and that’s unfair – no one could’ve taken into account when they signed up for products how considerate each lender would be in these extraordinary times.”

A brief consultation on the proposals is under way until Monday with changes to be implemented on Thursday, if agreed. That process is expected to be a formality.

Britain’s banks this week cancelled £7.5bn of shareholder payouts scheduled for this year after pressure from regulators to use the cash to support households and businesses.

Business secretary Alok Sharma told lenders that they must ensure businesses are not unfairly denied access to a £330bn pot of government-backed loans designed to help the economy through the crisis.

“It would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty,” Mr Sharma said.

“Just as the taxpayer stepped in to help the banks in 2008, we will work with the banks to repay that favour and support the businesses and people in their time of need.”