Lender adding interest after payment plan

Legal position:
Under the law of England and Wales, whether a lender can continue adding interest and charges after you enter a payment plan depends on several factors, including the type of credit agreement, its regulatory status, and the specific terms of the payment plan. Most consumer credit agreements are regulated by the Consumer Credit Act 1974 (as amended) and the Financial Conduct Authority (FCA) rules, particularly those in the Consumer Credit sourcebook (CONC). Lenders must treat customers fairly, which includes considering forbearance if you are in financial difficulty.

If the agreement is regulated and you have entered a formal repayment plan (such as a debt management plan or an arrangement via a debt advice service), the lender is often required to suspend or limit additional interest and charges, especially if continuing them would exacerbate your financial hardship. For example, FCA rules in CONC 7 require lenders to deal sympathetically with customers in default or arrears, and they may not add charges that are disproportionate or unfair. However, the lender is not automatically prohibited from adding interest unless the plan explicitly agrees to freeze it. In cases of persistent debt (e.g., on credit cards), recent FCA interventions since 2018 require lenders to help customers repay more quickly, potentially by waiving interest.

If the debt is unsecured and not regulated (e.g., certain business loans), the position may differ, and interest could continue accruing unless negotiated otherwise. Court judgments on debts (County Court Judgments) typically accrue interest at 8% per annum unless varied.

This depends on missing details such as the type of loan, whether it is regulated, the exact terms of your payment plan, and any notices you have received from the lender.

Practical options:
It is sensible to first review your position carefully to avoid escalation. Consider the following steps in order:

1. Check your original credit agreement and any payment plan documentation for clauses on interest and charges during repayment – look for terms about "default interest" or "forbearance".

2. Contact the lender directly in writing (e.g., by email or letter) to clarify their policy and request that interest and charges be frozen, providing evidence of your financial situation if relevant. Keep records of all communications.

3. If dissatisfied, seek free debt advice from reputable sources like StepChange, Citizens Advice, or the Money Advice Service, who can negotiate on your behalf and assess if the lender is complying with FCA rules.

4. If the lender is authorised by the FCA, you could complain to them formally, and if unresolved after eight weeks, escalate to the Financial Ombudsman Service (free and binding on the lender).

5. Only as a last resort, consider formal legal action, such as disputing the debt in court, but weigh the costs, evidence requirements, and risks involved.

Recent changes that may apply include FCA guidance on treating vulnerable customers fairly, updated in 2021, which emphasises tailoring support in payment plans. If your situation involves vulnerability (e.g., health issues), highlight this to the lender.