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Credit Cards & Loans

FCA accused of failing poorer households over credit card debt

Emma Lunn
Written By:
Emma Lunn

Charities slam regulator for failing to protect consumers from high interest costs on credit cards.

A report from the End the Debt Trap Coalition titled Regulating the credit card market: why we need a cap on costs said almost half of the poorest households are using their credit cards to pay for food, living costs or unplanned emergencies.

Many are still paying more than £2 for every £1 borrowed despite Financial Conduct Authority (FCA) rule changes.

The coalition, made up of the Centre for Responsible Credit, Jubilee Debt Campaign, New Economics Foundation and Research for Action, calls for a cap on the total cost of charges borrowers pay.

The group’s report focuses on credit card debt, which has been growing alarmingly in recent years. Total consumer credit debt now stands at £217bn – the highest level on record and greater than prior to the finance crisis of 2008. Around one-third of this amount is owed on credit cards.

The study found that measures introduced by the FCA in 2018, which were aimed at curbing ​‘persistent credit card debt’, are not working. Almost half of those spending more than a quarter of their income on debt repayments – the threshold for what is considered ​‘severe’ debt – earn less than £15,000 a year.

It also found that one in five (18 per cent) of credit card borrowers are incurring debts on their credit cards to pay for food or other living costs, and 12 per cent to pay for emergencies such as car repairs.

The percentage of people using their cards for these purposes increases to 40 per cent among those living in households with pre-tax incomes of less than £15,000. A further 20 per cent of low-income credit card borrowers used their credit card to refinance existing credit card borrowing or to pay off other types of debt.

End the Debt Trap is calling for a cap on the costs of credit card similar to that applied to payday lenders in 2015.

Andrew Pendleton, director of policy at the New Economics Foundation, said: “With incomes squeezed and costs rising and with the fiasco of Universal Credit, many of the poorest households in the country are turning to their credit cards to make ends meet, but then sinking deeper into the debt trap. It’s a growing crisis and it’s shocking that the FCA does not have a handle on it.”

Damon Gibbons from the Centre for Responsible Credit (CFRC), said: “It is outrageous that people using credit cards can still pay more in interest and fees than they would if they borrowed from a payday lender. This continues despite the FCA’s recent rule changes, which are inadequate to address problems in this market. Despite having the power to introduce a cap on the cost of credit card debt the FCA has conducted no detailed assessment of this option. Just as it did with payday lending, Parliament should now intervene and force the FCA to impose a cap.”