Loan, Credit Card etc payments during Covid

Loan, Credit Card etc Payments during Covid

Back in March / April 2020, the Financial Conduct Authority (FCA) fully recognised the huge problems initially created with the first National Lockdown.

As a result the FCA agreed with Non Mortgage Lenders that anybody affected by the Lockdown, could request up to 3 months “payment break” for most Loans.

At that time the Banks agreed NOT to mark Credit Files with negative marks on the Credit Records.

New guidance will come into force on 25 November 2020 but the FCA encourages firms that are able to start providing this enhanced support sooner to do so. 

The guidance covers users of personal loans, credit cards, store cards, catalogue credit, rent to own, buy now pay later, pawnbroking, motor finance and high-cost short-term credit.

The FCA reiterates that consumers should keep up with payments on their loans or credit products if they can afford to do so, and should only request payment deferrals (also known as freezes or holidays) where absolutely necessary. The FCA has also provided more detail about who is able to apply for payment deferrals under today’s finalised guidance. 

The guidance sets out that:

• Those who have not yet had a payment deferral will be eligible to apply for payment deferrals of up to 6 months in total. 

• Those who currently have a payment deferral will be eligible to apply for a further deferral, as long as the total length of deferrals doesn’t exceed a maximum of 6 months in total.  

• Those who have previously had a payment deferral of less than 6 months will also be eligible to apply for a further payment deferral, as long as the deferrals don’t exceed 6 months in total. 

• A firm may assess that a payment deferral is obviously not in a customer’s interest. In such cases, the firm should instead provide tailored support appropriate to the customer’s circumstances.

• Consumers who have already had 6 months of payment deferrals or who are in arrears or receiving tailored support, will not be eligible for a further payment deferral. Instead, firms will provide tailored support appropriate to their circumstances. This may include the option to defer further payments.

• High-cost short-term credit consumers, such as those with payday loans, will be eligible for a payment deferral of 1 month.

Sheldon Mills, interim Executive Director of Strategy and Competition at the FCA, said: ‘It is in a consumer’s best interest to only take a payment deferral when absolutely necessary. Those that are able to keep paying should do so.

‘However, for those continuing to face payment difficulties as a result of coronavirus, these measures will ensure they continue to be able to access much needed support during this crisis. We also want to highlight that tailored support will still be offered and remains the most appropriate option for many borrowers.’

Consumers who are struggling with the cost of their overdrafts as a result of coronavirus will be able to request support which reflects their individual circumstances, as set out in our tailored support guidance, published in September. This could include reducing or waiving interest. 

Consumers will have until 31 March 2021 to apply for an initial or a further payment deferral. After that date, they will be able to extend existing deferrals to 31 July 2021, provided these extensions cover consecutive payments, and subject to the maximum 6 months allowed. If borrowers who have not yet taken a deferral think they need the full 6 months, they should apply in good time before their February 2021 payment (to cover a full six months of payments, from February to July inclusive). 

A payment deferral under today’s finalised guidance would not be reported as missed payments on a consumer’s credit file. This does not mean that consumers’ ability to access credit will be unaffected, as lenders may take into account a range of information when making lending decisions. 

Tailored support may be reported on a consumer’s credit file, and lenders should inform consumers where this will be the case. This would include any further payment deferrals offered. 

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

Examples of Tightening in Finance Availability

Car Finance

It was reported that BBC Scotland had learned that Hitachi Capital Vehicle Solutions has sent a letter to brokers and dealers across the UK, saying it would not now lend to people working in the Hospitality sector.

The company said it wanted to prevent customers being declined loans, which could affect their credit rating.

Hitachi Capital Vehicle Solutions is one of the UK's largest vehicle finance companies.  A spokesman said it had decided to "openly communicate a temporary change to our credit criteria" with its brokers and dealers.

"This decision was made in order to protect individuals in this sector from being potentially declined, and therefore putting customers in a situation that could impact their credit rating," he said.

Guarantor Loans 

The subprime lender Amigo, has paused new lending after the coronavirus outbreak, as it has struggled to deal with an avalanche of complaints from customers, it has said it would not offer loans until next year.