FCA warns of ‘potentially problematic credit card debt’

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The UK’s financial regulator has fired a warning shot to Britain’s credit
card industry by urging companies to stop the lucrative practice of
allowing customers with high debt balances to continue making minimum
monthly repayments for several years.

In its study of the credit card market, the FCA highlighted the lack of understanding among consumers of how credit cards work, particularly regarding repayments, write Joel Lewin and Naomi Rovnick.

It said that a large proportion of credit card users “do not understand the cost implications of repaying the minimum or how long it would take to pay off debts at this level.”

The FCA said the research has “reinforced concerns on those consumers who are carrying a significant level of credit card debt for a long period,” and “suggests that firms do not have strong incentives to help customers out of persistent credit card debt.”

“Consumers can suffer from inertia, failing to take action, and inattention, having limited capacity for decision making and may not pay full attention to the decisions they need,” said the FCA.

It has outlined a number of industry-led initiatives to improve the situation, including:

• Timely prompts before promotional periods end;

• Timely information to prompt consumers to take into account how much they are borrowing and avoid over limit charges; and

• Giving consumers the ability to choose the payment due date.

Christopher Woolard, Director of Strategy and Competition at the FCA, said:

Our final findings show that competition is working fairly well for most consumers, with firms competing strongly for custom, and the market offering a range of products to meet consumers’ needs.

However, we remain concerned about persistent and potentially problematic credit card debt. We will continue to work closely with consumer groups and industry and to deliver changes to help consumers gain more control over their finances.

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