A regulatory review of 100 lenders’ treatment of their credit-card customers has resulted in changes to certain practices that will mean consumers saving millions of pounds, after the UK financial watchdog found that some of the companies plied their clients with an “unacceptable” amount of charges and late fees.
The Financial Conduct Authority claimed on Wednesday that customers would save £80m a year after the review forced certain lenders to change their practices.
The regulator found evidence of some companies not living up to their obligations of monitoring when a customer might be in financial difficulty, finding that in “many cases” lenders were making the situation worse by applying a series of compounding charges and fees in a single billing cycle. Lenders are meant to consider postponing or waiving charges if customers might be in financial difficulty.
The FCA wrote to the companies this week following its year-long study, which came in the wake of a larger overhaul of the credit-card market. In the letter published on Wednesday, the regulator said that it had found that fees and charges represented a bigger proportion of overall outstanding debt for customers with lower credit limits.
Jonathan Davidson, the FCA’s executive director of retail supervision, said in a statement: “It is unacceptable for firms to ignore signs of customers struggling financially and continue to charge them fees for missed payments which they likely can’t afford.”
The review comes a year after the regulator introduced rules that aimed to save consumers £1.3bn a year by requiring lenders to waive credit-card fees and interest for those mired in persistent debt.
It was part of the regulator’s efforts to help some 3.3m Britons with long-lasting debt problems — and who have historically been a lucrative source of income for companies.
That larger piece of work has included trying to reform other parts of the high-cost credit market, such as rent-to-own, where it confirmed this week that it would impose a 100 per cent price cap on products.
“It’s clear that reducing harm in the credit card market remains a work in progress,” said Peter Tutton, head of policy at StepChange, the debt charity. “We’re still concerned that, despite recent regulatory intervention, credit card customers can still build up a significant potential debt problem before the interventions to address persistent credit card debt kick in.”
The FCA’s review on credit-card fees concentrated on late fees, charges for going over credit limits and fees for returned payments.
“Early warning signs such as regularly incurring fees and charges should be a wake-up call to the possibility of financial distress,” added StepChange’s Mr Tutton. “We hope that card providers will renew their efforts to spot early signs of financial difficulty, and if firms don’t address this the regulator shouldn’t be reticent about taking further action.”
Mr Davidson’s letter this week put senior managers at lenders on notice that they were responsible for making sure the FCA’s message filtered down through their firms. Tough rules hold senior managers accountable for failings on their watch, making them liable for a fine or even a ban.
UK Finance, the banking trade association, said that its members took their obligations seriously and would work with the FCA over how they could best spot and support customers in difficulty.
A spokesman said: “Since September 2018 firms have enhanced their focus in this area, following the new FCA rules on earlier intervention. Firms have also implemented renewed communications strategies to help prevent fees being triggered in the first place.”
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