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Payment holidays were designed to offer a financial helping hand to households struggling amid the ongoing pandemic. The support measure was scheduled to end on October 31, bringing to a close months of payment freezes for many Britons. However, amid the second lockdown and ongoing issues, the Financial Conduct Authority (FCA) has announced how lenders should proceed.
It submitted its proposals today, which if adopted are likely to have a significant bearing on how consumers will be supported.
The main proposal being put forward by the watchdog is an extension of payment deferrals and additional support to personal loans and credit cards.
This is designated for those who are continuing to experience payment difficulties due to the COVID-19 pandemic.
The proposals mean those who have not had a payment deferral as of yet, may be eligible to receive two payment deferrals of up to six months.
However, there is slightly different support for those who have already taken a payment holiday.
These individuals will be eligible to receive a further deferral of up to three months in total.
For individuals who have payday loans, otherwise known as high-cost short-term credit, and who have not had a payment holiday, a deferral of one month will be available.
While the initial deadline was October 31, the new proposals from the FCA would mean customers have until January 31, 2021, to request a payment holiday.
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For those who are worried about their credit score going forward, the FCA has also issued further guidance.
The proposals suggested would mean a payment holiday would not count on a borrower’s credit file.
However, this does not mean lenders cannot take this into consideration when making lending decisions in the future.
For those who have already received two payment holidays, the FCA has advised a different approach.
These people can expect to receive the form of tailored support originally suggested by the FCA before these new proposals.
This means lenders should not apply the ‘one-size-fits-all’ approach they have done in the past.
But this kind of support can also be recorded on a credit file, and so borrowers may wish to be careful.
Lenders, however, should inform their customers when this will be the case.
Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, commented on the measures.
He said: “We know that many consumer credit borrowers are vulnerable.
“That’s why tailored support reflecting borrowers’ individual circumstances will still be offered and remains the most appropriate option for many.
“We are also proposing to extend payment deferrals for some consumer credit products to offer additional support.
“It is in borrowers’ own long term interest only to take a payment deferral when absolutely necessary. Those that are all to keep paying, should do so.
“We are also asking borrowers not to contact their lender yet, and instead wait for further updates, including from their lenders, soon.”
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