As noted earlier, the FCA has published the new rules that firms require to implement by 14 April 2020. In relation to the overdrafts, the FCA has implemented two measures (1) interest free overdrafts and (2) overdraft interest rate pricing.
Who does the rules apply to?
It applies to:
- firms who have permission to accept deposits and which provides current accounts with an overdraft facility
- primary personal current accounts only
- EEA firms who currently passport into the UK.
It does not apply to private banks and credit unions.
It applies to customers who are already experiencing or reasonably expects to experience temporary payment difficulties as a result of coronavirus.
It does not apply to customers who are in pre-existing financial difficulty – usual forbearance rules should continue to apply to that cohort of customers.
MEASURE 1: INTEREST FREE OVERDRAFTS FOR THOSE IN DIFFICULTY
The rules require firms to implement the following:
- where an overdraft has a limit of over £500 limit, no interest should be charged on the first £500 irrespective of the balance that exceeds that amount; and
- in the case of an arranged overdraft with a limit of £500 or below, the entire balance should be interest-free.
Customers have 3 months from 14 April to request the assistance and the assistance will last for 3 months from the point of request.
Firms can opt to provide the 3 months’ assistance period to all accounts without customers requiring to request it so long as this is done for a fixed period in the calendar for all customers. Firms comply with this if:
- the interest free amount extended is at least that required to be provided under this guidance; and
- the measures must be of at least 3 months duration, starting no later than 14 April.
During this time, customers can still apply for new or increased overdraft facilities and firms must undertake the usual creditworthiness assessments before granting it. Creditworthiness assessments can look beyond any period of temporary financial hardship if it is reasonable to expect the customer’s financial position to improve in the future.
Communicate with customers and update call centre/branch policies – firms should make it clear in their communications (including websites) that this measure is available. Firms should also brief agents/staff to identify issues where an interest free overdraft might be appropriate so that they can offer these when relevant.
Credit Files – should be updated to reflect that the customer is making use of an interest-free overdraft facility.
MEASURE 2: OVERDRAFT INTEREST RATE PRICING
Firms must undertake an analysis to ensure that their overdraft prices are consistent with the obligation to treat customers fairly in light of the exceptional circumstances arising out of coronavirus.
In particular, the FCA expects firms to ensure customers are not worse off when compared to prices charged prior to the publication of PS19/16.
The FCA suggests that firms have a couple of options to be able to achieve this:
- not introducing price increases;
- reducing its published interest rates;
- manual adjustments.
At the end of 3 months, providers should look at individual customers’ situations to assess whether a customer is still in financial difficulty and if so, usual forbearance should apply.
Firms should consider whether their overdraft repeat use strategy should be amended In particular whether any customer contact should be delayed.