We have received several complaints from readers who have been unhappy with the management of their payment holidays. Many bank customers believe they were not fully informed about the consequences of taking a payment holiday or in some cases were granted a payment holiday without requesting it.
The acceptance of a payment holiday would have automatically extended the period of the home loan. This was to allow customers to continue to pay the same installment value as prior to the payment holiday.
Where customers initially took a payment holiday but then decided to make the installment payments without opting out of the payment holiday, they will find that their statement still shows the extended loan period. If you continued to make the installment payments, you would still settle the home loan in the original time with no additional interest cost, however, your statement would show the extended mortgage period.
This could provide some flexibility if you found you needed to reduce your installment in the future, or you could ask the bank to adjust this back to the original period.
In the case where a customer did not make payments during the payment holiday, they would need to increase their installments above what they paid before the payment holiday if they wanted to ensure they still settled the bond according to the original mortgage period.
As interest rates were cut during this period, it may be a bit confusing as to what installment you need to pay in order to repay your mortgage in the original time, so best to speak to your bank.
Automatic extension of some payment holidays
In another case, Vanessa discovered that her Standard Bank home loan account was not debited after the three-month payment holiday had passed.
“I was informed that I was given an automatic additional three-month payment holiday. I was concerned as I had not requested this so I asked about how the repayment would now work. I was told that for a three-month payment holiday my bond would be extended by twelve months and for a six-month payment holiday my bond would be extended by 24 months.”
Steven Barker, head of lending at Standard Bank, explained that due to the high number of calls at the beginning of lockdown from customers who wanted to take a payment holiday, the bank was concerned that they would not be able to process these in time.
Rather than having bounced debit orders which could negatively affect customers’ credit scores, Barker says the bank created three strategies to assist clients.
- The majority of clients were pre-approved for a payment holiday and received an SMS where they could indicate whether they wanted to take up the payment holiday option.
- Clients who were not pre-approved could contact the call centre and have their request considered based on their specific situation.
- The bank identified customers they believed would be most vulnerable – primarily small business owner – who received an automatic payment holiday which they had to opt out of. In other words, those customers would have had to either inform the bank that they did not wish to take a payment holiday, or make their payments manually, as the debit order was suspended.
In Vanessa’s case, she owned a business identified by the bank as being in a sector that had been negatively affected by the lockdown, so the bank took a decision to automatically extend her payment holiday.
Barker says customers were all informed via SMS of the extension. Any customer who did not wish to extend the period could inform the bank.
The automatic extension of the payment holiday was an unusual step by Standard Bank. It appears that other banks required customers to specifically request an extension.
Given the speed at which the banks had to move to provide support to customers while still managing their own COVID-19 health and safety protocols, it is possible mistakes have been made on some customers’ accounts or that instructions have not been received.
It is important to check the statements on all your loan agreements and make sure your repayments have resumed. If not, notify the bank immediately.
Barker says any customer who did not want a payment holiday extension can notify the bank and they will be put back in their original position, however, this needs to be within a month of the payment not going through. If you only discover this in a few months’ time, it cannot be reversed.
Barker denies that the automatic opt-in was a way for the bank to make money. “Payment holidays are expensive for us. We had to provide for those payments from our balance sheet. We would prefer not to have payment holidays, but we did not want people to default,” he said.
Barker says the bank is now in the process of informing those customers who took the payment holiday on how to ensure that their loan is still settled in the original loan period.
“We will be providing our customers with payment plans that will ensure that where possible they still settle the loan according to the original timeframe and do not pay additional interest.”
- Stay on top of your repayments
- Video: Pay back that payment holiday
- Paying the price of payment holidays
- Reduce the impact of that payment holiday
- Listen: Beware the payment-holiday trap
This article first appeared in City Press.