Sunday, 27 September 2020 16:16

Repayment Holiday Meant Credit Limit Cut

Were you one of the hundreds of thousands of people who took a credit card repayment holiday because you thought that it would have no negative impact?

During the Covid-19 crisis, the FCA ordered lenders to work with borrowers who found themselves struggling to may repayments. They asked that lenders didn't punish borrowers through fines and negative entries onto their credit records. Two weeks after that, the Government and the FCA ordered lenders to give their borrowers the options of Repayment Holidays.

The Repayment Holiday scheme was rushed out at the end of March to cope with what would have been a mass number of defaults in the UK's consumer credit market. It consisted of a three-month payment break; all borrowers had to do to obtain a repayment holiday was to contact their lender. Borrowers were told that it would not impact on their credit record.

This repayment holiday covered all aspects of consumer finance from mortgages, car repayments, unsecured loans to credit card repayments. Unfortunately quite a lot of the public thought that repayment holidays would also freeze the interest, but later realised it was still accumulating. Most people automatically assumed that "repayment holiday" meant an "interest holiday". This has led to a number of people getting further into debt as the compound interest added up even faster.

But that wasn't the only problem, new research has come to light that shows over 85% of those who took a repayment holiday have now received a cut to their credit limit. American Express seems to be the most ruthless, with the average credit limit being cut by up to 50%. This can be explained by AMEX borrowers having the highest limits of all the major card providers.

It wasn't only American Express that went on a cutting spree; every lender has reported cutting limits for those who applied for repayment holidays. Lenders have explained that the FCAs rules not only permit them to cut credit card limits but demand it if there are any signs that borrowers are in financial difficulties.

We spoke to 2 borrowers who have seen their limit reduced to the same level as their balance, meaning effectively that they couldn't use their cards and a more.

You may want to look that financial gift horse in the mouth a little more closely next time the FCA and lenders come to help.

Comments (3)

This comment was minimized by the moderator on the site

Capital One took away most of my available credit limit. I had about £600 to spend, they cut my limit and now I only have around £100 to spend. In a way, I was sort of banking on that money to get me through.

This comment was minimized by the moderator on the site

I applied for a repayment holiday on my Aqua card, I didn't take it, it was just nice to have in case anything happened and I needed it. They reduced my limit down from £1200 to £450. Nothing I could do.

This comment was minimized by the moderator on the site

American Express cut my credit limit from £24,000 down to £18,000, I didn't take a payment holiday though. It may be the lenders are just getting a bit squeamish. I went on to Google and search for "credit limit cut" to try and see if it was just me or other people also the problem. I found loads of people complaining about rate cuts.

I think lenders are panicking, might be lenders running out of money.

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