The Financial Conduct Authority (FCA) has published an updated consultation on rules to help customers in persistent credit card debt. This follows an April 2017 consultation paper on proposed remedies to help millions of people get out of expensive longer-term credit card debt. These include firms, at designated timeframes, prompting customers to make faster repayments or proposing repayment plans, as well as intervening earlier if customers are struggling to repay.
It also proposes that where a customer cannot 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, for example by reducing, waiving or cancelling any interest or charges.
There was widespread support in principle for the FCA’s proposals, which are expected to lead to savings for customers from lower interest payments as a result of faster repayment. The FCA expects that the savings would peak in the first few years of the proposed rules being in place, at between £310m and £1.3bn per year, before reducing as fewer customers get into persistent debt over time.
Making low repayments on credit cards over a long period can be very expensive and can mask underlying financial difficulty. The FCA’s proposed remedies on persistent credit card debt rebalance incentives so that both firms and customers are encouraged to avoid credit card debt becoming persistent, and customers who cannot afford to repay more quickly are given help.
The consultation includes a revised analysis of the costs to businesses of the proposed remedies, to take into account additional data the FCA has received and some data that was omitted from previous calculations. The FCA is seeking further views before finalising proposals, in line with their statutory and public law consultation duties. The expected benefits to consumers from the FCA’s proposals remain significantly higher than the revised costs to businesses (up to £101m in one-off costs at an outside estimate and £18m per year).
The paper also sets out how the FCA’s has changed its thinking on aspects of its persistent debt proposals in light of the feedback it has received. It also gives interested parties the opportunity to submit new evidence or comments.
The consultation will run for six weeks, ending on 25 January 2018, and the FCA expects to make new rules as early as possible next year.
Andrew Bailey, FCA Chief Executive, said: “The proposals we are introducing will save consumers billions of pounds by reducing longer-term borrowing on credit cards, which can be very expensive and can hide real financial hardship. We remain committed to action to protect consumers in the credit card market as soon as possible.”
The FCA’s remedies are based on its in-depth study of the credit card market, which analysed 34 million credit card customers’ accounts over five years and surveyed nearly 40,000 consumers to build up a comprehensive picture of credit card use.
The FCA also wants to ensure that customers are not given unaffordable increases to their credit limits and that they have proper control over those limits, and has agreed voluntary measures with the industry to address this. These include customers in persistent debt for 12 months not receiving offers of credit limit increases which would result in around 1.4m accounts per year not receiving such offers.