Credit, Collections & Insolvency News
The persistent debt crackdown from the Financial Conduct Authority (FCA) has pushed credit card firms to be more supportive of customers struggling with long-standing debt since the rules came into force in 2018. However, according to the latest analysis from Moneyfacts over the same period the interest-free balance transfer market has contracted.
The analysis reveals that. the number of interest-free balance transfer deals has fallen to 60, less than half that seen in 2017 and a drop of 40 deals since 2018, the year the persistent debt rules were put in place.
The length of 0% offers has fallen sharply, with the longest today at 29-months, down from 43-months back in 2017 and 38-months in 2018. Whilst consumers using a 0% balance transfer card now have 141 fewer days on average to repay their debts before interest applies than they did in 2017, and 104 fewer days than in 2018.
Rachel Springall Finance Expert at Moneyfacts.co.uk, said “The persistent debt study from the Financial Conduct Authority instructed credit card providers to do more to support customers who were struggling to repay their debts* and this month marks three years since the proposals were made. Over this period the credit card market has seen interest-free balance transfer offers shorten and choice diminish for consumers looking to move their debts.”
“Consumers who have not been able to repay their debts before any interest-free offer expires may well be searching for a balance transfer card, and traditionally this time of year we would see a burst in competition, but this hasn’t come to fruition this year. In fact, there are now only 60 different 0% introductory balance transfer offers on the market, 40 less than in 2018 and less than half that seen in 2017 when there were 126.”
“The impact of the Coronavirus pandemic will be different for each consumer, and some may be struggling and in need of support. Credit card repayment holidays would have given consumers some relief, but debts will need to be repaid eventually. According to the Money Charity, the average household credit card debt is £2,133, so if consumers could only afford a fixed £80 a month to repay, the debt would hang overhead for over two years. There will be some consumers who have been able to pay off more debts due to a rise in the amount of disposable income amassed during lockdown, but it is also important to build an emergency savings fund.”
“It is hard to tell what attitude to risk credit card lenders will adopt during 2021 in light of the pandemic, and whether this may lead to a further reduction in interest-free balance transfer offers. Consumers looking to take advantage would be wise not to wait around too long and ensure they check their credit score before they apply. They should also be careful to weigh up the length of any deal and its fees, or even search for a shorter interest-free offer without fees instead.”
*According to the FCA, persistent debt is defined as when customers have paid more in interest and charges than they have repaid of their borrowing over an 18-month period. Since September 2018 firms would need to review the last 18-month history of a borrower’s repayment records, if they are in persistent debt, and assess whether they are subject to the new rules.”