The U.K.’s top financial regulator proposed that banks freeze new interest payments and other charges for struggling borrowers who are continuing to face hardships due to COVID-19.
The Financial Conduct Authority on Wednesday released draft guidance for lenders aimed at extending emergency relief to both consumers and commercial borrowers that use credit cards, overdraft and other short-term credit products.
The FCA’s new proposals, which follow another plan it is floating to aid mortgage borrowers, arrive ahead of the Oct. 31 sunset on existing measures offering payment deferrals to distressed consumers and businesses.
“Our proposals are designed to help people who have been facing payment difficulties because of the pandemic get back on track with tailored support from firms,” said Christopher Woolard, interim chief executive of the agency. “For those who can restart payments, it is in their best interests to do so.”
At a minimum, banks and other lenders would be required to suspend, reduce, waive or cancel “further interest, fees or changes” when implementing forbearance arrangements under the proposed guidance on consumer credit.
The other guidelines, centered on overdraft practices, propose that banks contact overdraft customers who’ve received temporary support to see if they require additional assistance. If they do, firms are encouraged to use measures such as reducing interest or a staged reduction of the overdraft limit to support the borrower.
Together, the proposals set out to recognize that not all consumers will be able to resume regular payments in November and to offer those distressed borrowers a “full range of shorter and longer-term options” to “minimize stress and anxiety” of consumers.
The FCA has also proposed new rules intended to free so-called “mortgage prisoners,” or borrowers who are “trapped” within their current mortgage and are unable to refinance or move.
In a July consultation paper, the agency noted that borrowers have fewer options for refinancing their debt since many lenders have removed mortgage products from the market.
The FCA proposed changes that would make it easier for closed-book borrowers to switch to a new deal with a firm that sits within the same group as their current lender, and to delay repayment of mortgage capital on maturing interest-only and part-and-part mortgages.
Its current rule on payment deferrals was extended in July through the end of October to accommodate a prolonged pandemic. The agency would not commit to another extension of deferrals, but said it would keep the regulation under review in case additional relief is required.
The FCA seeks public comments on the new proposed rules by Sept. 21.
-- Additional reporting by Carrie Wood