The UK’s financial watchdog, the Financial Conduct Authority (FCA), has today proposed new measures to provide temporary financial support to customers being hit by the effects of coronavirus.
This announcement comes in response to most lenders introducing overdraft rates of almost 40%, a measure which has resulted in fierce criticism from both borrowers and financial commentators.
The new measures would order lenders to:
The FCA are conducting a fast-tracked consultation process on these measures. Lenders must respond by Monday 6 April. The measures are due to come into force on Thursday 9 April if approved.
If the temporary measures are brought in, they will not automatically be applied to you – you must ask your lender for assistance and continue making any repayments in the meantime.
Furthermore, it is expected that there would be a brief transitional period to give lenders time to implement these changes. After any such period passes, any lenders refusing to comply with the above changes would be in breach of FCA rules, and customers would be entitled to raise a complaint with the Financial Ombudsman Service.
However, as we have seen with the business loan support scheme policy dictated by the Government, the FCA and those at the highest level of UK banking Is taking some time to trickle down to credit committees, relationship managers and their teams on the front lines. We would suggest that customers seeking to take advantage of forbearance measures ensure that their requests are communicated clearly to their banks with reference to the FCA’s announcement.
The FCA advises that for customers who are able to continue making repayments as normal, it would be in their best interests to do so.
The approach the FCA would appear to be quite rightfully taking, perhaps with the 2008 financial crisis in mind, is that banks should not be able to benefit from their customers’ exposure to financial pressure caused by a national crisis. It would seem equitable that the public, who bailed out these institutions during the last financial crisis, should now be supported by, or at the very least protected from predatory behaviour from, our banks through these unprecedented times.
The FCA will be making a further announcement on these changes next week and we will provide further update then.
***UPDATE 9th April 2020***
Following a brief consultation, the FCA rules were changed with effect from 9th April 2020, and the full measures detailed above will be in force from 14th April 2020. This provides institutions one week to allocate appropriate resources to deal with requests from customers. Many lenders have already adopted the measures, but as of now all banks and building societies must implement them. It should be noted that some methods of alternative personal finance do not fall within the rules; including pay day loans, car financing, and peer-to-peer loans, but we should see further announcements from the FCA relative to these in the coming weeks.