Banks to give up to £500 interest-free overdrafts to customers due to coronavirus cash crisis
BANKS are to give customers an interest-free overdraft worth up to £500 to help them through a cash crisis caused by coronavirus.
The move has been approved by the city watchdog and will give banks the option to offer the emergency measure to those who are struggling financially.
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The idea was proposed by the Financial Conduct Authority (FCA) last week after it warned it wants banks to do more to help Brits pushed into debt by the impact of coronavirus.
But it also stressed that banks should ensure that borrowers are no worse off compared to before new overdraft rules came into force on Monday.
The interest-free overdrafts will be offered to customers who already have an arranged overdraft and who's finances have been negatively impacted by coronavirus measures.
They won't be offered to customers who are already in serious and immediate financial difficulty whereby taking out more credit would force them further in debt.
Which banks are offering the interest-free overdrafts?
FROM today, banks and building societies must offer customers who are financially struggling an interest free overdraft.
They have until next Tuesday to fully introduce the measures to give them enough time to sort out the right resources.
Some banks are already offering it. Here's what they're doing:
- Bank of Scotland, Halifax, Lloyds Bank
Lloyds Banking Group will waive interest on overdrafts up to £500 from April 9 until July 9.
The measures will be automatically applied to all arranged overdrafts, although if you have an overdraft under £500 and you want to increase it you'll need to apply to do this.
You'll also need to apply for an overdraft if you don't currently have one, which will be subject to all of the usual credit checks.
- First Direct and HSBC
The banks are part of HSBC banking group and is automatically waiving interest on overdrafts of up to £500 from April 9 until July 9.
Customers will need to apply for a new overdraft or an extension to an existing one in the normal way.
- Santander
Santander will automatically waive the interest on the first £500 of any arranged overdraft used between April 6 and July 9.
This is an increase on the £350 buffer it had initially planned to introduce earlier this week.
You need to apply for both a new overdraft to increase your existing overdraft.
- TSB
From April 8 until July 8, TSB will implement an interest free overdraft buffer of up to £500 for all arranged overdrafts.
This will apply automatically for existing borrowers, although you will need to ask TSB if you want to increase your overdraft to the £500 interest-free limit.
If this is you, then the FCA advises that you speak to the Money Advice Service.
The interest-free overdrafts are just one part of a package of measures that have been approved.
Banks and lenders are now also expected to offer temporary payment freezes on loans and credit cards for up to three months.
These include guarantor loans, logbook loans, home collected credit, loans issued by Community Development Finance Institution and regulated loans issued by credit unions.
The rules also applies to firms which have acquired these types of loans.
Banks and building societies must also make sure that customers' credit scores will not be affected if they accept help by pausing repayments.
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The watchdog says that the moves will ease pressure on borrowers with credit cards, loans and overdrafts who are facing temporary financial difficulties because of the pandemic.
Christopher Woolard, interim chief executive at the FCA, said that the measures offer "short-term financial support".
He added: "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."
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The rule changes come into force from today but banks don't have to offer the options until Tuesday April 14, to give them enough time to get the right resources ready.
However, the FCA has confirmed that some firms, including major banks and building societies, will be adopting the changes immediately.
Lloyds, HSBC and Santander announced that they were offering the overdrafts free of charge earlier this week.