The Financial Conduct Authority (FCA) announced Monday (April 3) it is proposing new rules to help customers who have ongoing credit card debt.
In a press release, the FCA said the new rules comes after a FCA study of U.K. credit card debt found big worries about the size, extent and nature of the credit card debt problem. Under the FCA’s definition, consumers fall into the category of having persistent credit card debt if they have paid more in interest and charges than they have paid back over an 18-month period. Customers who are in persistent debt are profitable for the credit card companies who in turn don’t intervene to help struggling credit card debt holders.
According to the FCA, around 3.3 million people are in persistent debt, with more than half (1.8 million) for two consecutive periods of 18 months. The proposals put forth by the FCA would require 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. We expect our proposals to reduce the number of customers in problem credit card debt as well as put customers in greater control of their borrowing,” said Andrew Bailey, FCA chief executive, in a press release announcing the proposed rules. “Persistent debt can be very expensive — costing customers on average around £2.50 for every £1 repaid — and can obscure underlying financial problems. 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.”
Under the new rules, credit card companies would have to take a series of steps to help customers in persistent debt. When a customer has been in persistent debt for 18 months, 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 steps, such as proposing a repayment plan, to help them to repay their outstanding balances more quickly, the FCA said. The FCA also proposes that if a customer can’t afford any of the options proposed to repay their balance more quickly, firms must take further steps to assist them to repay the balance in a reasonable period. That could be done by reducing, waiving or cancelling any interest or charges, the FCA said.