The Financial Conduct Authority (FCA) said competition in the credit card market was working “fairly well” but it is concerned about consumers who make minimum payments, and the lack of incentives for firms to help them.

Research by the regulator found that around 6.9 per cent of cardholders – roughly two million people – are in arrears or have defaulted on their liabilities. A further two million have persistent levels of debt which some may be struggling to repay, and a further 1.6 million people are repeatedly making minimum payments on their card debt.

The FCA identified a range of potential remedies to make the market work better for consumers.

In relation to shopping around and switching, they include:

• Measures to help consumers find the best deal include enabling better access by consumers to their transaction data, boosting the role of comparison sites; and
• Ensuring consumers can search the market without damaging their credit score, and prompting consumers when they are nearing the end of a promotional period.

To reduce problematic credit card debt, they include:

• Measures to give consumers more control over credit limits and utilisation.
• Measures to encourage consumers to pay off debt quicker when they can afford to.
• Firms do more to identify earlier those consumers who may be struggling to repay and take action to help them manage their repayments.

Christopher Woolard, FCA director of strategy and competition, said: “This is a really important market in the UK. Around 60 per cent of adults have at least one credit card, and there is an estimated £61bn in outstanding balances.

“Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.”

Commenting on the report, Joanna Elson OBE, chief executive of the Money Advice Trust, said the FCA was “absolutely right” to be concerned about the number of people making minimum payments.

“These customers are not borrowing sustainably, and are usually in need of free debt advice,” she said.

“As the report highlights, credit card companies usually intervene effectively to help customers who begin to miss payments, and many work closely with debt advice charities to make sure customers get the free advice they need.  A more consistent similar approach to customers who are routinely making minimum payments would be enormously beneficial.

“With borrowing on credit cards rising by around £0.3bn a month and household budgets likely to come under further pressure from rising rents and interest rate rises, now is the time to address this problem. We need to work even harder to make sure that anyone who shows signs of struggling to cope is able to access free advice from a charity-run service such as National Debtline as soon as possible.”

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