Credit card firms pushing consumers into long term debt

Raising credit limits without consumers’ request should be banned, says Citizens Advice.

Credit card firms pushing consumers into long term debt

The charity has warned credit card firms are pushing consumers into long term debt.

Citizens Advice published its new report examining consumer borrowing and long term consumer debt problems in Britain, Stuck in Debt, last week (August 30).

Research from the report found that nearly one in five people struggling with debts have had their credit card limit raised without them requesting it.

Citizens Advice is also concerned that firms are not providing support early enough to people who, despite meeting the minimum repayments, are struggling with long term credit card debt.

The charity is calling for changes to protect people from falling into long term credit card debt, including:

  • Firms to be banned from raising people’s credit limits without obtaining their explicit consent to give people more protection against ever increasing debt.
  • The Financial Conduct Authority (FCA) to provide clear guidance to lenders stressing that before increasing a borrower’s limit, they must check their ability to repay it.

Simon Cadbury, head of strategy and innovation at Intelligent Environments, said: “Clearly there is more to be done by financial institutions to ensure their customers are equipped with the tools to successfully manage their money.

“Digital tools are key to improving transparency, ensuring customers keep on top of their money management and stay out of debt where possible. Our own research revealed that almost half of consumers would be less likely to go into debt if they had access to a digital money management tool. It’s now up to banks to build trust with their customers, providing them with the technology they need to stay on top of their finances, living stress free.”

In March 2016, Nationwide changed its terms and conditions to rule out auto credit limit increases.

Dan Wass, director of banking and insurance at Nationwide Building Society, said: “Allowing customers to decide whether or not they receive an increase to their credit card limit not only helps them stay in control of their money, but could also prevent them getting further into debt.”

The Stuck in Debt report found people struggling with long term credit card debt were more likely to have their limit raised – nearly 20 percent of struggling credit card users had their limit raised in the past year without requesting it.

The charity found people with credit card debts were also more likely to get into long term debt than those with personal loans and were less able to pay their debt down.

Citizens Advice helped nearly 66,000 people with over 140,000 credit card debt problems in the last year. This included one pensioner who was repeatedly called by firms offering more credit cards – despite the fact that she could only afford to make minimum repayments on her existing cards.

She used the cards to meet her essential bills and ended up with a total of 21 credit cards and debts totalling £70,000.

Another man the charity helped owed £15,000 on four different credit cards, but despite only making minimum repayments on each card which just covered the interest, he was notified by all four providers that they were increasing his credit limit. He turned to Citizens Advice for help when his debts hit £30,000.  

Gillian Guy, chief executive of Citizens Advice, said: “The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances.

“Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support – rather than more credit.”

The FCA has announced a range of proposals to help those already in long term credit card debt who are spending more on credit card interest charges than paying off the total amount they owe.  It says lenders should contact customers who have been in this situation for three years to arrange a plan to pay their outstanding balance more quickly.

Citizens Advice said lenders should be asked to intervene sooner – at the very latest after two years – to help people struggling with unaffordable debt.