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THE SCOTSMAN Monday 6 April 2020

SCOTSMAN.COM @THESCOTSMAN

Pressure on household finances
By VICKY SHAW
New overdraft rules come
into force from today, which
mean firms can only charge
onesingleannualinterestrate
for both arranged and unarranged borrowing.
The changes were
announced by the Financial
ConductAuthority(FCA)long
before the coronavirus outbreak put many households’
finances under pressure.
Many overdraft providers
had pegged their new single
overdraft rates at around 40
per cent – which is around
double the rate some borrowers had previously been paying to use their arranged overdraft.
However, as part of stop-gap
measures to help cushion the
financial impact of coronavirus on their customers, some
providers are temporarily
freezing rates at lower levels
or rolling them back down
to what they had been before
they were increased.
Many providers are also
ramping up their zero-interest overdraft buffers, so borrowers may not pay anything
in the short-term.
For example, HSBC UK is
temporarily halving its new
39.9 per cent overdraft rate,
taking it back down to 19.9 per
cent.
From April 9 for a threemonth period, HSBC UK will
alsoautomaticallyincreaseits
temporaryinterest-freebuffer
for millions of Bank Account
and Advance Account overdraft customers to £500.
NatWest has frozen overdraft interest at current rates
for personal customers for at
least three months.
The temporary relief available for overdraft customers
affected by the coronavirus
outbreak varies between providers.
But the FCA proposed last
weekthatablanketzero-interest buffer of £500 should be

introduced across providers,
foruptothreemonths,onpeople’s main accounts.
The proposal is being consulted on – but if agreed it
could be in placeby Thursday.
In the meantime, the new
industry rules coming into
force from today aim to make
overdraft pricing simpler
and fairer, reducing the burden on some people who have
previously been paying high
charges.
Firms will need to charge a
simple annual interest rate –
without any additional fees
and charges for using an overdraft.
The new rules will particularly help people who have
paid high charges in the past
for going into an unarranged
overdraft.
The FCA previously found
thatunarrangedoverdraftfees
are often ten times as high as
charges for payday loans and
falldisproportionatelyonvulnerable consumers.
The regulator’s calculations
suggested the cost of borrowing £100 through an unarranged overdraft would fall
from a typical £5 per day to
under 10p per day.
It also said in January that it
expects firms to help people
who borrow large amounts
within their arranged overdraft, which could include
reducing or waiving interest
or agreeing a repayment programme.
GarethShaw,headofmoney
atWhich?,said:“Theseimportantchangeswillgiveconsumers more clarity about their
financesandshouldhelpthem
makeinformedspendingdecisions.
“Itisrightthatbanksarenow
working with the regulator to
provide further help for customers who may need to use
an overdraft facility to help
manage their finances during
the coronavirus outbreak.
“The FCA must keep a close
eye on developments in this
area, including competi-

tive pricing, to ensure that its
transformation of current
account overdrafts delivers
for customers.”
Here is a round-up of what
major providers have already
announced about their new
overdraft rates and the measures put in place for giving
temporaryrelieftoborrowers
affected by coronavirus:

Nationwide Building Society
New rate: Nationwide introduced a 39.9 per cent rate in
November 2019.
Overdraft relief: The Society will not charge overdraft
interest from April 20 until
July 1 for those financially
affected by coronavirus. Customers can request a fee-free
overdraft interest holiday by
completing an online form.
Nationwide will email or text
to acknowledge requests.

Lloyds Banking Group
Newrate:Themajorityofcustomers will pay 39.9 per cent
(29.9percentforClubLloyds).
As the group takes a “riskbased”approachtooverdrafts,
some customers will pay 49.9
per cent.
Overdraft relief: All customers will be able to have a £300
interest-freebufferfromApril
6 to July 6. As a result of this,
Lloyds said all its overdraft
customers would pay less
fromApril6.Itsaid90percent
of customers would have paid
less for their overdraft even
if the £300 buffer across its
accounts was not introduced.

Barclays
Newrate:Arateof35percent
took effect on March 22.
Overdraft relief: Barclays is
waiving all overdraft interest
fromMarch27untiltheendof
April2020,meaningnocharges for customers to use their
agreed overdraft. Interest will
automatically be removed.
Barclays is reviewing measures after this date and will be
communicatingwithcustomers shortly.

Average SME does not have cash to pay debts
By ALAN JONES
The average smaller company does not have enough
cash to cover debts due in the
next year, a new study has
suggested.
Accountancy group UHY
Hacker Young said an analysis of the balance sheets
of more than 13,500 SMEs
(small to medium-sized
enterprises) shows the average firm only has 95 per cent
of cash needed to pay debts
due in the next 12 months.

The ability to pay shortterm debts out of cash or other short-term assets is seen
as a key indicator of business
health, especially in periods
of financial stress such as the
current coronavirus crisis,
said UHY. It warned the current “cash flow crunch” is
only likely to get worse in the
coming months.
Martin Jones of UHY said:
“Coronavirus disruption is
going to make the situation
even worse over the coming
weeks and months.
“A lot of SMEs have seen

their incomes drop precipitously almost overnight.
Cost-cutting isn’t going to fix
the problem – many will need
emergency support from the
government as well as swifter
payments from their debtors.”
A government spokesman
said: “The government has
set out a substantial package
of financial measures to support small businesses. This
includes tax breaks, cash
grants of up to £25,000, £330
billion of loans and guarantees.”

HSBC UK
New rate: HSBC imposed a
new rate of 39.9 per cent on
March 14. But it is now temporarily reducing the rate
chargedaboveitsinterest-free
buffer to 19.9 per cent.
Overdraft relief: Alongside the rate reduction, HSBC
said that, from April 9, for a
three-month period, it will
increase the temporary interest-free buffer for millions of
Bank Account and Advance
Account overdraft customers
from £300 to £500.

NatWest Group
New rate: A rate of 39.49 per
cent would have been introduced on April 1 for NatWest
customers, and on March 30
for RBS and Ulster Bank customers. But customers will
continue to pay their current
rateofinterestforatleastthree
months, meaning a maximum of 19.89 per cent across
arrangedandunarrangedborrowing.
Overdraft relief: As well as
the rate freeze, the bank has
also removed all other overdraft fees and charges, so all
customerswhousetheiroverdraft for the three months
from March 30 will pay less.

Santander
New rate: Santander previouslyannounceditwillbe39.9
percentfromApril6,however
itplanstomakeafurtherstatement in due course.
Overdraft relief: Santander
previously announced a £350
interest-free overdraft buffer
for three months from April
6. This means it will automatically waive interest on up to
£350 of any agreed overdraft
limit.
Santander said last week:
“We will be reviewing the FCA
proposalsasamatterofpriorityandwillbeannouncingnew
measures to help our customers as soon as possible.”

Co-operative Bank
New rate: A rate of 35.9 per
cent was due to come into
force on April 4 – but this has
been delayed until July 3.
Overdraft relief: Customers with an existing arranged
overdraft will have the interest waived on up to £500 of
arranged overdraft use until
July 3.

TSB
New rate: TSB previously
announced a rate of 39.9 per
cent.
Overdraft relief: TSB has
introduced measures includingfeeswaiversorimplementing an interest freeze on their
overdraft.
Itislookingtomakechanges
to align with FCA’s guidance,
effective by April 9.

Union body calls for
By JANE BRADLEY
TheTUChastodaycalledfor
an“emergency”boosttoUniversal Credit to help people
get through the coronavirus
outbreak.
The union body says that
without an urgent increase,
unemploymentsupportwill
belowerinrealtermsduring
the coronavirus outbreak
than during the mass unemployment peaks of the 1980s
and 1990s.

The report says that with
unemployment set to rise
sharplyasaresultofcoronavirus hitting businesses and
the economy, more support
is needed to help those who
lose their jobs.
Unemployment support
in the UK compares poorly
with other European countries,wherebenefitsarepaid
as a proportion of previous
earnings, ranging from 60
per cent in Germany to 90
per cent in Denmark.
The union said that in the