Credit and Loan Consumers Set to Get More Financial Backing
While the UK, like the rest of the world, is in the throes of the Coronavirus, it must be heartening news for many in need of financial help that the Financial Conduct Authority (FCA), following its Vulnerability and Harms Survey which indicated that financial resilience has plummeted since February, has directed lenders and banks to offer a raft of measures to help borrowers get back on track. These range from support with making a budget to payment and/or interest deferrals.
UK household debt reaches £10.3bn due to Coronavirus
According to debt charity StepChange, the total amount of household debt across the UK, driven by Covid-19, has now peaked at £10.3bn, which represents a £4.3bn increase since May.
Nevertheless, existing debts need to be paid and the Government has put many schemes in place to ease the effect of the continued loss of household incomes - but these have proved to be less than adequate, particularly for middle to low-income earners and especially in certain industries and parts of the country.
The Financial Conduct Authority (FCA), in line with its principle of “treating customers fairly”, has taken steps to ensure that customers benefit from extra protection and financial support. Firms are being encouraged to offer targeted support while consumers are urged to be proactive and transparent by seeking help as soon as they know they will need it.
Mortgages, personal loans, credit cards, car finance, buy now pay later, rent to own, overdrafts and other forms of general household credit need to be serviced as much as possible while the world battles to return to normal.
Payment holidays have been extended for customers struggling with credit - New six-month rule
Applications for payment deferrals can now be made up until 31st March 2021. The support available has been streamlined so that customers who have not yet had a payment deferral will be entitled to apply for payment holidays of up to six months in total and those who have already had a payment deferral will be entitled to a further one - provided it does not exceed a total of six months.
The exception to the above two provisos is High-Cost Short Term Credit (HCSHT) customers (with payday loans etc), who are only eligible for a one-month payment deferral and no more.
A £500 overdraft facility for those customers with non-basic accounts who do not already have one may also be available, depending on your bank and subject to the usual checks. If you are struggling with the cost of your overdraft, you are able to ask your bank for further support depending on your individual situation.
In the event that consumers have already had six months' worth of payment deferrals in total or they are currently receiving bespoke support to help with their arrears, they are, unfortunately, not able to apply for another payment holiday.
Additionally, it is worth noting that it is within any company's right to determine whether or not a payment holiday is in your best interests. If they feel that it is not in your best interests, alternative tailored help should be provided.
The above measures are due to be enforced on 25th November. However, lenders and banks are urged to offer help where possible until then.
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Will a payment deferral affect my credit score or future credit applications?
Consumers making use of the FCA’s various lifelines must consider this pertinent question as the world looks to come out of lockdown.
The FCA has confirmed that arranged payment breaks (deferrals) will not affect your credit score, neither will they be reported as missed payments to credit reference agencies (CRAs) or listed as such on your credit file.
Having said this, tailored support such as payment holidays could be reported or implied on credit reports by lenders, which means that your eligibility for certain loans and credit in the future could be affected. This is because lenders generally take a host of information about you into consideration when deciding whether or not to lend you money. If they see that you've taken a payment holiday or two in the past, they may refuse your credit application because you could be seen as a high-risk borrower, particularly if you have any missed payments or negative financial associates on your report. In any case, lenders must inform you if a payment deferral is going to be reported on your credit file.
The new Experian Boost feature, which can reward customers for regularly paying household bills which are not traditionally factored into credit scores, has not come too soon for consumers in the UK.
As the FCA encourages lenders to apply the principle of “treating customers fairly” in these difficult times, credit reporting does balance the scales for customers to at least try to treat lenders fairly by making payments if they are able to do so or risk a negative credit report, even if missed payments are not explicityl reported. The FCA also continues to encourage all consumers to make their credit or loan repayments on time if they can afford to, and payment deferrals should be applied for only if it is really needed. Additionally, if customers are struggling, they must inform their lenders and banks straight away to see what tailored support they could receive.
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