Struggling credit card customers could get more help from lenders
The Financial Conduct Authority (FCA) defines customers in ‘persistent’ debt as those who have paid more in interest and charges than they have repaid of their borrowing, over an 18-month period.
It estimates that around 3.3 million people in the UK fall into this category.
Under the proposed measures, credit card firms would have to prompt customers in persistent debt 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 would have to take steps, such as proposing a repayment plan, to help them to repay their outstanding balances more quickly. Customers who do not respond, or who can repay their balances faster but refuse to do so, would have their cards suspended.
In extreme cases, firms would be obliged to reduce, waive or cancel interest or charges.
Andrew Bailey, FCA chief executive, said: “Credit cards can be very effective products for consumers, but a significant minority of customers experience real difficulties. 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.
“Persistent debt can be very expensive – costing customers on average £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.”
The FCA expects these measures to lead to lower interest payments as a result of faster repayments. By 2030 it expects savings to customers could reach between £3bn and £13bn.
Under separate proposals, the watchdog will require firms to intervene earlier to signs a customer is in financial difficulty, building on an existing rule that requires firms to monitor a customer’s repayment record for signs of actual or potential financial difficulties.
Firms would be expected to do more to use the extensive data available to them to identify customers in difficulty.