Financial Conduct Authority (FCA) plans to change how credit card firms offer credit limit increases do not go far enough to protect consumers from problem debt, Citizens Advice says. The update paper on credit cards and persistent debt released today shows the FCA has stopped short of the clear ban on unsolicited increases Citizens Advice is calling for.

The FCA today announces a new six week consultation period on the proposals. The proposals include a “voluntary agreement” with credit card companies which will see unsolicited credit limit increases remain the default option for existing customers – requiring people to opt out of receiving them.

The agreement will stop uninvited increases for people with persistent credit card debt for more than a year – but won’t prevent people from getting into debt in the first place. Citizens Advice evidence shows that 6 million people received a credit limit rise they didn’t ask for last year. People who were struggling financially were more likely to be given credit limit increases they haven’t asked for than those who weren’t, which risks pushing people already facing problems further into debt.

With 85% of consumers opposed to unsolicited increases and evidence they are given most frequently to those who can least afford them,the charity is now calling on the FCA to take action and ban these rises – and if they won’t, the Government should direct them to do so.

Gillian Guy, Chief Executive of Citizens Advice, said: “The FCA’s voluntary agreement with credit card companies still leaves people vulnerable to building up problem debt. Existing customers will still receive extra credit they haven’t asked for by default – unless they contact the card provider to opt out. This arrangement allows credit card companies to sidestep the real issue of lending more responsibly and is unlikely to prevent people building up problem debt as people tend to stick to default options and are unlikely to opt out of uninvited increases.”

“There isn’t a single good reason to allow unsolicited increases to continue. If we are to stop people getting trapped into debt spirals, the FCA should use the extended consultation period to reconsider the voluntary agreement and end the damaging practice of raising people’s limits without their consent.”

In response, Peter Tutton, Head of Policy at StepChange Debt Charity said: “With 3.3 million people in the UK in persistent credit card debt and a further 2 million stuck in overdraft debt according to our latest findings, we welcome the FCA’s focus on helping people out of persistent problem debt. However, FCA action should deliver a dramatic reduction in the number of people trapped in persistent credit card debt now and prevent more people getting trapped in the same way in future.”

“The FCA must ensure that all credit card lenders treat people consistently and fairly to offer a safe and affordable way out of persistent credit card debt. The FCA must now quickly act to ensure minimum repayments in credit card agreements are sufficient to prevent new borrowers falling into the same long-term debt trap.”

Related news