No new blanket £500 interest-free buffers for overdraft customers

Overdraft customers will not be offered new blanket £500 interest-free buffers as part of fresh support measures to support those struggling financially due to coronavirus, it has been confirmed.

The deadline for applying for such buffers was October 31 2020.

Many overdraft borrowers have recently seen their overdraft interest rates double, to around 40%. Lenders have introduced these rates in response to new rules around the way that banks can charge for overdrafts. The industry rules were introduced to make overdraft charging structures clearer and fairer.

Despite no new blanket interest-free buffers, the Financial Conduct Authority (FCA) said that tailored support for overdraft customers, which it set out in September, is still available.

This means that banks should be helping overdraft customers who are still struggling, with measures such as reducing or waiving interest, agreeing a programme of staged reductions in their overdraft limit or transferring the overdraft debt to another form of credit with a better interest rate.

The FCA said: “We consider that this provides the necessary support to help consumers by tailoring it to those that need it, and helping them to manage the cost of their borrowing.”

The regulator also published draft guidance on Wednesday, which will give borrowers with other products such as personal loans and credit cards an extended window to apply for payment freezes.

Under the FCA’s proposals, these borrowers will have until January 31 2021 to request an initial payment holiday.

The draft guidance was published ahead of England going into a second national lockdown, from Thursday.

Under the proposed measures, payment holidays and other support for borrowers with personal loans, credit cards, motor finance, rent-to-own and buy-now-pay-later products, and pawnbroking customers who are experiencing payment difficulties because of coronavirus will be extended.

This means those who have not yet had a payment holiday will be eligible for two payment deferrals of up to six months in total.

Those who currently have an initial payment holiday will be eligible for a further payment deferral of up to three months.

Payday loan customers who have not yet had a payment deferral will be eligible for a one-month payment holiday.

The FCA emphasised it is important that borrowers who can afford to make repayments continue to do so.

It is urging consumers not to contact their lender until the enhanced measures are in place and said lenders will soon provide further information.

A payment holiday under the FCA’s proposals would not be reported as a missed payment on a borrower’s credit file.

But the regulator said this does not mean that consumers’ ability to access credit will be unaffected in future, as lenders may take into account a range of information when making lending decisions.

Consumer credit customers who have already had two payment holidays, or one if they are a payday loan customer, should speak to their lender about tailored support if they are still experiencing difficulties, the FCA said.

Tailored support may be reported on a borrower’s credit file, and lenders should inform borrowers where this will be the case.

Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “We know that many consumer credit borrowers are vulnerable. That’s why tailored support reflecting borrowers’ individual circumstances will still be offered and remains the most appropriate option for many.

“We are also proposing to extend payment deferrals for some consumer credit products to offer additional support.”

Similar support has already been set out for mortgage customers.

The regulator said on Monday that mortgage borrowers who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total.

Under the FCA’s proposals, mortgage borrowers will also have until January 31 2021 to request a payment deferral and finalised guidance will be published soon.

The FCA said it will continue to keep the support available to consumers under review.

Gareth Shaw, Head of Money at Which?, said: “Our research has shown an increase in the number of people missing credit card, loan or bill payments in recent weeks.”

Eric Leenders, managing director of personal finance at UK Finance, said: “Lenders continue to provide unprecedented support to borrowers impacted by the Covid-19 crisis and are working closely with the FCA to ensure customers continue to receive the help they need.”

He added: “Customers seeking to access this support do not need to contact their lenders yet and should wait for further updates on how to apply once these measures have been finalised.”