New regulations will come into effect from the November 1 which will affect millions of people across the UK who have credit card repayments, loans, or overdrafts.
These new regulations will replace the current help on offer which involves banks offering their customers who are battling with their finances due to the coronavirus payment holidays. However, if a person accepts any of the new support offered by banking providers it will now appear on their credit record.
What are the New Regulations?
The Financial Conduct Authority (FCA), has confirmed the new rights that consumers have been given will help to prevent debts spiralling due to bank charges and interest rates on credit and loan repayments.
Under the new regulations, banking providers will need to offer struggling account holders tailored support including, getting rid of interest payments, extending loan terms and scrapping various other charges that customers face with any credit-based products offered by banks.
The personalised support that banks will be required to offer will take into account the ongoing situation as it changes and evolves on both a local and national level. It will aim to reflect an account holder’s individual circumstances in a bid to combat the “one size fits all” approach which currently exists.
But with the new payments appearing on a customer’s credit file, will this really help customers in the future after the pandemic has subsided?
The Impact on Credit Scores
The latest figures show that under the current regulations, there have been over one million credit card deferrals and 738,000 personal loan deferrals which highlights the struggle customers have been facing since the coronavirus outbreak – however, these deferrals don’t currently appear on a customer’s credit file.
The FCA explained that the decision for any support offered by banks to now appear on millions of credit files across the UK is so “lenders have an accurate pictures of consumers’ financial circumstances” and to help “reduce the risk of unaffordable lending”.
Job Losses are Expected to Soar
With the government’s furlough scheme coming to an end, it’s predicted that job losses throughout the UK will rise – even with the new post-furlough plan that the Chancellor of the Exchequer, Rishi Sunak, announced a few weeks ago.
This has the potential to leave some consumers in a vulnerable position who need support from their bank during this difficult and uncertain time and may need top rely on credit whilst they wait for the economy to bounce back and the job market to start growing again.
Customers will Suffer the Most
With any support offered by banks appearing on credit records across the country, this will potentially have a serious impact on a consumer’s financial future.
Currently, any missed payments on loans, instalment repayments or credit cards appear on credit records for up to seven years, so once the virus has died down and normal life resumes across the country, customers who have previously accepted this support in a time of complete turmoil could feel the long term impact of these new regulations when it comes to lending money in the future.
With the regulations yet to take effect, it’s currently unclear how lenders will view any support offered by banks. However, it will paint a picture of struggling consumers who have suffered as a result of the coronavirus and the reliance on credit facilities across the UK.