HSBC (HSBA.L) and the Co-operative Bank on Friday said that they would temporarily increase the interest-free buffers on overdrafts for millions of their customers during the coronavirus crisis.
HSBC’s UK banking division said that, from 9 April, interest-free buffers for Bank Account and Advance Account overdraft customers would be increased from £300 to £500 for a three-month period.
Similarly, the Co-Operative Bank said that, from Saturday until 3 July, it was introducing a £500 interest-free buffer for customers with an arranged overdraft on their personal current accounts.
The moves come after the Financial Conduct Authority (FCA) on Thursday called on banks to temporarily stop charging interest on the first £500 in withdrawals from existing overdraft facilities.
Both banks also announced changes to the interest charged on withdrawals over the buffer. HSBC said that it would temporarily reduce the interest rate charged on these same accounts from 39.9% to 19.9%.
Last year, the FCA introduced new rules to fix what it called the “dysfunctional” overdraft market, and called on banks to remove overdraft fees and to charge a single interest rate by April 2020.
But the Co-operative Bank said it would not introduce its new 35.9% overdraft interest rate until 3 July, and will instead leave its current rates of 18.9% and 15.9% in effect.
The changes will be automatic, the banks said, and customers do not need to contact their banks.
However, HSBC, which is also suspending all late credit card payment fees, cautioned that the £500 buffer should only be used by customers if it was necessary.
“We know that budgets and finances overall may be under considerable strain and we want to make sure we’re working with our customers every step of the way as this situation continues to unfold,” said Maria Cearns, the managing director of retail deposits at the Co-operative Bank.
Tracie Pearce, HSBC UK’s director of retail banking, said that the measures will provide “cashflow support at this crucial time.”
“The intention is to provide support to customers pending receipt of government aid such as universal credit, furloughed employees and self-employed relief,” she said.
Business secretary Alok Sharma on Wednesday urged lenders to “repay the favour” from the 2008 financial crisis by supporting the economy throughout the coronavirus pandemic.
Several banks have introduced similar measures in recent days, and further moves are expected next week.