FCA to impose new rules for helping consumers with credit card debts

The Financial Conduct Authority (FCA) is proposing new rules to help over 3,000,000 customers repay their credit card debt.

FCA to impose new rules for helping consumers with credit card debts

This follows the regulator’s study of the UK credit card market, which found significant concerns about the scale, extent and nature of problem credit card debt. It estimates around 3.3 million people are in persistent debt, with over half (1.8 million) for two consecutive periods of 18 months.

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.

Andrew Bailey, chief executive of the FCA, said: “Persistent debt can be very expensive – costing customers on average around £2.50 for every £1 repaid – and can obscure underlying financial problems.

“Because these customers remain profitable, firms have few incentives to intervene. We want to change this situation so that firms and customers will deal with outstanding debt more quickly, and avoid persistent debt in the first place.”

Bailey expects the proposals to reduce the number of customers in problem credit card debt, as well as putting customers in greater control of their borrowing.

The proposals require firms to prompt customers to make faster payments if they can afford to, or for firms to propose a repayment plan. For those that ignore or decline these options the firm can suspend the credit card.

If a customer cannot afford to repay debts as proposed, firms must take further action to help this such as reduce, waive or cancel any interest or charges.

The FCA hopes the faster repayment of credit card debt will lead to customer savings, by 2030 it expects these savings could reach up to £13bn.

The consultation paper, which will close July 3, also sets out measures agreed by the industry and the FCA to give customers greater control over increases to their credit limits.

Mike O’Connor, chief executive of StepChange Debt Charity, said credit card debt remains the biggest single category of problem debt for its clients, with average debts of more than £8,000.

He said: “We welcome moves to tackle persistent debt, but we are concerned that these proposals will not fix the central issue that credit cards, which are supposed to be a short-term form of borrowing, often become long-term and expensive debt.

“Two key questions remain. How will these proposals help prevent people from falling into persistent debt? And will these interventions do enough to get people out of long-term debt?”