Credit card plateau may herald change in 2020

A noticeable levelling off of credit card lending over the second half of 2019 so far bucks a significant long-term trend, suggesting that we may see big changes in the credit market during 2020, according to the December 2019 Money Statistics, produced by The Money Charity.

In 2019, after years of considerable, rapid growth, credit card lending across the UK levelled off. According to the Bank of England, in the year to October 2019, outstanding credit card balances grew by only 0.18% (£130 million, or an average of £2.48 per adult), with consecutive monthly falls recorded during July, August and September 2019.  This compares to previous years’ rises of 3.9% for the year to October 2018, 5.0% for the year to October 2017 and 5.5% for the year to October 2016.

While credit card balances reached this plateau, total unsecured consumer debt increased by 3.24% (£7 billion) in the last year, while mortgage debt increased by 2.82% (£39.5 billion). The increase in mortgage debt was roughly the same as the Government’s entire fiscal deficit in 2018-19 (£41 billion).

This changing balance between credit card debt and other forms of unsecured credit, such as personal loans and overdrafts, may reflect the growing influence of the FCA’s new rules on persistent credit card debt, which will reach a first anticipated ‘crunch’ point in implementation during Q1 of 2020.

Under these new rules, lenders have a responsibility to proactively help manage the debt of consumers with persistent credit card debt, measured over a three-year period, so that they begin to lessen these persistent debt levels. Early 2020 will mark 36 months from the rules’ implementation, meaning the industry will shortly be addressing the first group of persistent credit card debtors under these new rules.

Erik Porter, Acting Chief Executive of The Money Charity said “After years of credit card balances climbing ever higher, this plateauing immediately stands out as highly unusual, and with the first real effects of the new rules on the horizon, the link seems clear. Moreover, a number of the advice charities we liaise and speak with are already seeing and reporting an upsurge in enquiries on credit card debt.”

“Credit cards were not designed to be a financial product consumers would use for long-term debt. They were short-term ‘quick fixes’ to help users with temporary fluctuations in income/expenditure, hence their typically high interest rates. The considerable growth in their prevalence for heavy levels of unsustainable indebtedness was always a looming major issue. We therefore welcome the new rules and the intent to draw people out of debt towards financial wellbeing, but remain concerned that too many will simply choose to shift their debt elsewhere, potentially to products with even more unsustainable rates.”