The Financial Conduct Authority (FCA), the U.K.’s financial watchdog, has found that some lenders are inflicting their credit card customers with an “unacceptable” number of charges and late fees.
After a regulatory review of 100 lenders, the FCA has forced certain lenders to change their practices, a move that will save customers £80m a year.
During the review, the regulator found that some companies were failing to monitor when a customer might be in financial difficulty, and that that in “many cases” lenders actually made the situation worse by implementing compounding charges and fees in a single billing cycle.
The FCA wrote to the companies this week, putting them on notice that they need to make sure the agency’s message was heard by their firms. Under the new rules, senior managers can be held accountable for any shortcomings, with a fine or even a ban being imposed as a result.
“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,” Jonathan Davidson, the FCA’s executive director of retail supervision, said in a statement, according to The Financial Times.
In 2017, the FCA proposed new rules to help the roughly 3.3 million British citizens that are dealing with ongoing credit card debt problems.
Under the agency’s definition, consumers have persistent credit card debt if they have paid more in interest and charges than they have paid back over an 18-month period. These customers are profitable for the credit card companies who in turn don’t intervene to help struggling credit card debt holders.
Under the new rules, credit card companies need to take steps to help customers in persistent debt, such as prompting them to make faster repayments if they can. If a customer is still in persistent debt after an additional 18-month period, firms must take steps, such as proposing a repayment plan, to help them to repay their outstanding balances faster. And if a customer can’t afford any of these options, firms will need to take further steps to assist them, including reducing, waiving or cancelling any interest or charges.
“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.”