The FCA is looking to finalise its plans this week to allow the freezing of car payments and payday loans – with the aim of helping consumers who are struggling financially during the COVID-19 pandemic.
Earlier month, the FCA confirmed that high street lenders and banks could freeze payments for up to 3 months for a range of financial products including personal loans, credit cards, logbook and guarantor loans.
Any loss of interest to lenders will be covered by the Government, in an attempt to safeguard jobs and also maintain financial health of households across the UK.
These measures follow the early freezing of mortgage payments with all banks required to offer their customers up to 3 months’ worth of mortgage payments – something that should save the average UK household around £2,100 over the next 12 weeks. Whilst applying for a mortgage holiday is free, there may be a small administration charge depending on your mortgage provider and interest will need to be paid as this is added to the loan term.
The government has also introduced business interruption loans of up to £5 million for small businesses – and these are available from a number of UK banks and lenders, of which the government is covering up to 80% of the loan for lenders.
For car finance, the FCA is confirming its proposal which may come with a minimum relief for car owners, and this could be extended to several months depending on the finance provider. During this time, it has been confirmed that no vehicles or homes can be repossessed and those struggling financially, will be able to access relief.
For payday loans, which are often considered to be high-cost loans, customers can apply for a one-month payment holiday which reflects the short term nature of the products.
The FCA is fast-tracking consultation on the proposals, with the aim of finalising their plans by next Friday, 24 April and putting them into place “shortly afterwards.”
Christopher Woolard, interim chief executive of the FCA, said:
“We are very aware of the continued struggle people are facing as a result of the pandemic. These measures build on the interventions we announced last week, and will provide much-needed relief to consumers during these difficult times.”
However, he warned that payment freezes might not be the best choice for all consumers, especially if increases the overall cost of the loan.
“We have tailored our measures to specific products. For most of these proposals, firms and consumers should consider the amount of interest which may build up, and balance this against the need for immediate temporary support. If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan,” he said.
Ian Sims of Badger Loans commented:
“Payday loans today are very much based around responsible lending and giving the right product for the customer. Affordability is of paramount importance and ensuring the customer does not fall into financial difficulty. Although lenders will be losing funds and more than 90% are not lending at the moment, the option of having a payment holiday is a sensible proposition and something that every company will appreciate and want to get on board with.”