CITY regulator the Financial Conduct Authority (FCA) has proposed that overdraft customers should be able to request zero-interest buffers up to £500 over three months to help ease the impact of coronavirus on their finances.
The stop-gap measures for some consumer credit products will be subject to a brief consultation period ending at 9am on Monday and, if confirmed, they will be in place by Thursday.
They include measures to ensure that for customers who have been hit financially by the coronavirus lockdown and already have an arranged overdraft on their main personal current account, they will be charged zero interest on up to £500 of that for three months.
Customers without an overdraft on their main personal current account can also request this facility.
Over a 90-day period firms will be required to make sure all overdraft customers are no worse off on price when compared with what they were charged before previously announced industry changes to overdrafts.
This means that from April 6 firms can only charge a single annual interest rate for both arranged and unarranged overdrafts, which will significantly reduce borrowing costs for many people who often breach pre-agreed limits.
However many providers have pegged their new single overdraft rates at around 40% – meaning some people who normally stick within their arranged limit could see their costs shoot up.
Many lenders have already announced overdraft support in recent days such as increasing interest-free buffers or waiving interest.
The FCA proposals also mean customers facing financial challenges because of coronavirus will be able to ask for a three-month payment freeze or to pay a nominal payment on credit cards, store cards and catalogue credit. Firms could consider other measures, such as reductions in monthly payments, and customer cards would not be suspended during this time.
Christopher Woolard, interim chief executive of the FCA, said: “Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK.
“If confirmed, this package of measures we are proposing today will help provide affected consumers with the temporary financial support they need to help them weather the storm during this challenging time.”
Martin Lewis, founder of MoneySavingExpert.com, added: “The provision is patchy and has become a banking lottery, and that’s unfair – no-one could’ve taken into account when they signed up for products how considerate each lender would be in these extraordinary times.
“The overdraft change is especially important. In a terror of timing, by next Monday – the start of the tax year – almost all lenders were due to be charging about 40% EAR (equivalent annual rate) on overdrafts.
“This is nearly double that of high-street credit cards. That made overdrafts the new danger debt.”
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