The coronavirus crisis has plunged millions of people into desperate financial straits via unemployment or pay cuts. Recognising this, the City watchdog, the Financial Conduct Authority, has said banks must bring in a series of measures to help those struggling to pay their bills.
Here’s the help available and the loopholes to be aware of.
Overdrafts
Anyone who has been affected by coronavirus and already has an arranged overdraft can ask their bank to lend them up to £500 interest-free for three months. The overdraft should be for their main personal current account.
Credit cards and personal loans
People with outstanding credit card bills or personal loans can now put a freeze on payments for up to three months if they have been hit by the pandemic. Making use of these options should not affect your credit score.
Sarah Coles of Hargreaves Landsdown, the investment firm, said if you missed payments because you couldn’t get hold of your bank in time to arrange a freeze, your credit rating would not be damaged either. “Where interest is frozen on credit cards, people wouldn’t usually be able to use those cards. That will not apply in this case and people can continue to spend,” Ms Coles added.
The FCA also said people who were still struggling with repayments once the three months were over should be given all help possible to keep on top of their debts.
When do the rules come in?
The new rules take effect today for customers of HSBC, Lloyds, RBS, Barclays, Santander and Nationwide. Other banks, and firms that provide services such as store cards, catalogue credit and guarantor loans, will have to follow suit before April 14.
What are the loopholes?
Nick Hill of the Money & Pensions Service, an official source of free advice, said people should consider the new options before they took on additional high-cost credit but should check what the longer term implications were before making any decisions.
People who take a three-month holiday from loan or credit card repayments will still be charged interest during that time, meaning the amount they have to pay back at the end will be higher.
Who will be left out?
So far no help has been promised for those struggling with hire purchases schemes (including car finance), payday loans or buy-now-pay-later. However, the FCA said it aimed to address these forms of borrowing. Customers of pawnbrokers and those who have taken out peer-to-peer loans will not get any support.
What is the scale of the problem?
Many households were already in a precarious position before the crisis. One adult in every five would not have enough in savings to last two months if they had no money coming in, according to research by Open Money, a financial adviser.
“The longer the pandemic lasts, the more people will fall into financial difficulties. It’s important to review your finances now and speak to your provider if you need help,” said the firm’s chief executive, Anthony Morrow.
Anyone concerned about their situation should contact the Money Advice Service, part of the Money & Pensions Service.