Interest-free bank overdrafts are very rare indeed in the UK and have perhaps most frequently been offered as sweeteners to persuade students to sign up with a particular bank. In a recognition of the very unusual times we are living in, the Financial Conduct Authority has now instructed current account providers to allow interest-free overdrafts of up to £500 for three months where the following criteria apply:
- The individual customer has been adversely affected financially by the coronavirus crisis
- The customer already has an arranged overdraft – it is not expected that the flexibility is granted to people applying for new overdrafts, or who are in an unauthorised overdraft
All lenders and credit providers across financial services are expected to offer a temporary payment freeze on loans and credit cards for up to three months, where their customers have been negatively impacted by coronavirus. There must be no adverse impact on the credit file of any customer who uses these payment freezes.
These new emergency rules do not prevent lenders making more generous provisions for their customers, should they choose to do so.
The FCA cautions firms that these new rules do not replace the normal forbearance rules in the Handbook, and firms should continue to apply the usual forbearance rules where they believe these are more suitable for a customer in financial difficulty.
Christopher Woolard, interim Chief Executive at the FCA, suggested these might not be the last set of radical measures announced by his organisation as it seeks to mitigate the impact of the pandemic. The FCA chief commented:
“We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic. The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
“Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
“We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article