Poll
Tougher rules for credit cards proposed
The report found significant concerns about the scale, extent and nature of problem credit card debt, with the FCA estimating that around 3.3 million people are in persistent debt.
What constitutes persistent debt?
Under the regulator’s definition, credit card customers are in persistent debt if they have paid more in interest and charges than they have repaid of their borrowing, over an 18-month period.
What is the FCA proposing?
New proposals would require credit card firms to take steps to help customers repay their balances more quickly and offer further assistance to those who can’t.
“Credit cards can be a very effective product for consumers, but a significant minority of customers experience real difficulties,” said Andrew Bailey, chief executive of the FCA.
“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 the new rules, when a customer has been in persistent debt for 18 months, credit card firms will be required to prompt them to make faster repayments if they can afford to do so.
If a customer is still in persistent debt after a further consecutive 18-month period, firms must take further steps, such as proposing a repayment plan, to help them repay their outstanding balances more quickly.
Customers who don’t respond, or confirm that they can afford to repay faster but decline to do so, would have their ability to use the card suspended.
“Persistent debt can be very expensive – costing customers on average around £2.50 for every £1 repaid – and can obscure underlying financial problems,” Andrew added.
“Because these customers remain profitable, firms have few incentives to intervene.
“We want to change this situation so that firms and customers will deal with outstanding debt more quickly, and avoid persistent debt in the first place.”
The FCA is also proposing that where a customer cannot afford any of the options offered to repay their balance more quickly, firms must take further steps to assist them to repay the balance in a reasonable period by either reducing, waiving or cancelling any interest or charges.
It would be expected that firms would normally suspend the use of the customer’s card during this period.
Andrew added: “The measures that we’re proposing today – alongside those already announced – are part of a package of significant improvements for credit card customers based on the comprehensive analysis of the market that we have carried out.”
How much could customers save?
The FCA hopes that by 2030 the savings to customers would reach a total of between £3bn and £13bn, depending on how firms and customers respond.
The regulator’s consultation paper sets out measures voluntarily agreed between the FCA and the industry to give customers greater control over increases to their credit limits.
New customers will also be given the choice of how increases will be offered, while existing customers would be given a more straightforward means of declining an increase and more choice as to how increases will be offered in the future.
The FCA’s consultations into these proposals will close on 3rd July 2017.
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