The UK’s financial watchdog has called for lenders to intervene earlier in dealing with customers unable to make more than the minimum repayments on credit card debt, amid mounting concerns about customers being mired in charges.
The Financial Conduct Authority said around 3.3m people are stuck in what it calls “persistent debt” – where they have paid more in interest and charges than they have repaid of their borrowing over 18 months – and are not being helped enough by credit card firms for whom they are profitable customers.
“Credit cards can be a very effective product for consumers, but a significant minority of customers experience real difficulties,” said Andrew Bailey, FCA chief executive. “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.”
Under proposals unveiled following an extensive study of the market, it is proposing that when a customer has been in persistent debt for 18 months, companies will be forced to prompt them to make faster repayments if they can afford to do so. If the situation does not change after another eighteen months, they must propose a repayment plan with those unwilling to do so having their card suspended.
The FCA said for those unable to make payments, lenders should take further steps such as reducing or scrapping interest or charges.
The FCA said that it expects savings to customers of between £3bn and £13bn by 2030 as a result of the changes, which are open to consultation before being implemented as firm rules.
Lending by banks to individuals grew by £4.9bn during February, according to Bank of England statistics published last week, slightly above the average of £4.8bn over the past six months.
Consumer spending has powered economic growth since the Brexit referendum last June, helping defy economists’ expectations of a slowdown, although there are growing concerns over how long this can last.
However, amid persistently low interest rates credit card companies are locked in fierce competition for borrowers with many offering zero interest rate deals that last at least three years.