UK’s Financial Conduct Authority gets persistent on credit card debt
Credit card firms have come in for a kicking as the UK’s Financial Conduct Authority (FCA) has proposed new rules to help customers who are in persistent debt.
This move follows the FCA’s study of the UK credit card market, which found “significant concerns” about the scale, extent and nature of problem credit card debt.
The FCA says: “Customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them.”
Under the FCA’s definition, credit card customers are in persistent debt if they have paid more in interest and charges than they have repaid of their borrowing, over an 18-month period. The FCA estimates that around 3.3 million people are affected, with around 1.8 million people in an even worse position – namely two consecutive periods of 18 months.
Andrew Bailey, FCA chief executive, says persistent debt can be “very expensive” – costing customers on average around £2.50 for every £1 repaid – and “can obscure underlying financial problems”.
Under the new rules, when a customer has been in persistent debt for 18 months, firms will be required to prompt them to make faster repayments if they can afford to do so.
If a customer is still in persistent debt after a further consecutive 18-month period, firms must take steps, such as proposing a repayment plan, to help them repay their outstanding balances more quickly. Customers who do not respond, or who confirm they can afford to repay faster but decline to do so, would have their ability to use the card suspended.
The FCA also proposes that where a customer cannot afford any of the options proposed to repay their balance more quickly, firms must take further steps to assist them to repay the balance in a reasonable period, for example by reducing, waiving or cancelling any interest or charges. It is expected that firms would normally suspend use of the customer’s card during this period.
The FCA expects these measures to lead to savings for customers from lower interest payments as a result of faster repayment. By 2030 it expects the savings to customers would reach a total of between £3 billion and £13 billion, “depending on how firms and customers respond”. The FCA expects that the savings would peak in the first few years of the proposed rules being in place, at between £310 million and £1.3 billion per year, before reducing as fewer customers get into persistent debt over time.