Banks are expected to have interest rates capped in light of COVID-19, according to a series of proposals to ensure lenders continue to be lenient with customers as the economic fallout from the pandemic continues.
The Fairbanking Foundation calls for “Significant government and regulator intervention” to limit high cost credit. The lobby group sent proposals to the Treasury’s economic secretary, John Glen, last week.
Suggestions include a freeze on credit card rates where they were on May 1 and capping overdraft interest rates at 25%. The current maximum rate on overdrafts is 40%.
Banks already have granted payment holidays on loans, credit cards and mortgages, as good as exemption from overdraft charges during confinement.
However, many of these breaks are expected to end in the weeks and months to come. Fairbanking wants restrictions put in place after these payment holidays expire to ensure that banks do not trick customers into trying to get money back or pushing Brits into debt in such a way. unsustainable.
“Many households are going to see their incomes drop,” Antony Elliott, founder of the foundation, told Yahoo Finance UK.
“When these things happen to people, a lot of people have a hard time estimating how long it’s going to last and tend to underestimate how long it’s going to last, so they can make short-term decisions that really aren’t. in their interest. – I will use all my credit cards, I will have a new credit card, I will run the overdraft.
Eliott pointed out a study carried out last year by the charity StepChange which found that 98% of people who used payday loans after a “life event” ended up with debt problems or financial hardship. The figure was 86% for people who turned to credit cards and overdrafts.
StepChange warned that the UK was facing debt “tsunami” in new report Tuesday. The charity said more than four million people could take on £ 6 billion ($ 7.6 billion) in debt during the current COVID-19 pandemic.
“The numbers are big already and they’re going to get bigger,” Elliott said. “As soon as the action happens the better.”
The Fairbanking Foundation is also calling for new, stricter caps on interest rates charged in the payday lending industry.
Also this week, the All-Party Parliamentary Group on Fair Banking called on banks to extend commercial mortgage repayment holidays for an additional three months beyond June.
A spokesperson for UK Finance, the UK banking industry lobby group, said: “The banking and financial industry is working hard to help all clients through this difficult time by providing an unprecedented level of support.
“For commercial customers, there is a wide range of flexible supports available, including facility modifications and principal payment holidays to help commercial borrowers manage the disruption.
“For retail customers, the industry has put in place a range of measures to help borrowers, including interest-free overdrafts of up to £ 500, repayment holidays for credit cards and personal loans and deferrals. for mortgages. “