UK watchdog proposes rules to help struggling credit card customers
The proposals follow a review by the FCA into Britain’s credit card market where 3.3 million people are in persistent debt, meaning they have paid more in interest and charges than they have repaid of their borrowing.business Updated: Apr 03, 2017 18:51 IST
Credit card firms will have to do more to help struggling customers repay their debts, including the suspension of cards under proposals published by Britain’s Financial Conduct Authority (FCA) on Monday.
The proposals follow a review by the FCA into Britain’s credit card market where 3.3 million people are in persistent debt, meaning they have paid more in interest and charges than they have repaid of their borrowing.
Credit card issuers typically do not step in because such customers are profitable, with costs to customers on average 2.5 pounds for every pound repaid.
“We expect our proposals to reduce the number of customers in problem credit card debt, as well as putting customers in greater control of their borrowing,” FCA Chief Executive Andrew Bailey said in a statement.
The UK Cards Association, an industry body, said it agreed with the FCA that the proposals were robust and would address the watchdog’s concerns.
But StepChange, a charity that helps people in debt, said the proposals do not go far enough in stopping credit cards from becoming a form of long-term and expensive debt.
Last week the Bank of England called for checks on standards in consumer credit, a sector that has been growing rapidly.
Under the FCA’s proposals put out to public consultation, when a customer has been in persistent debt for 18 months, issuers will have to prompt them to make faster repayments if they can afford to do so.
If a customer remains in persistent debt for another 18 months, firms must propose a repayment plan.
“Customers who do not respond, or who confirm that they can afford to repay faster but decline to do so, would have their ability to use the card suspended,” the FCA said.
If a customer cannot afford any of the options proposed to repay balances more quickly, firms could cut, waive or cancel any interest or charges, the FCA said.
“It is expected that firms would normally suspend use of the customer’s card during this period.”
The watchdog estimates that by 2030, savings to customers would reach 3 billion to 13 billion pounds ($3.76 billion-$16.30 billion). Savings would peak in the first few years at between 310 million pounds and 1.3 billion pounds a year.
Credit card issuers will also have to do more to identify struggling customers much earlier.
The consultation also sets out measures the regulator and the industry have voluntarily agreed to give customers greater control over increases to their credit limits.
All customers will be made aware of their right to decline offers of a credit limit increase.
StepChange said the FCA should ban all unsolicited credit limit increases because they deepen debt problems.
There are 30 million credit card customers in Britain, 60 percent of the adult population.