FCA Rounds On Credit Card Firms Over Customers in Persistent Debt

Credit Cards
04.02.2020 06:00 am

The Financial Conduct Authority (FCA) has written to credit card firms telling them to review their approach to borrowers who are stuck in persistent debt, where they are paying more in interest, fees and charges than they are paying of their balance.

The FCA require firms to help people who have been caught in a cycle of persistent debt for three years, by proposing and agreeing plans with customers to resolve the situation. Ahead of firms issuing letters setting out proposals to customers who have been in persistent debt for three years, and to make sure the firms approaches to the rules are working in the best interest of consumers, the FCA is outlining a number of areas firms need to review and ensure their approach is in line with expectations. This includes:

a concern that customers may not respond to letters from their credit card provider, advising that they have been in persistent debt for three years. Firms must encourage customers to speak with them to discuss potential repayment arrangements. If customers cant afford the options proposed by the firm, they must be treated with forbearance and due consideration, for example, by reducing, waiving or cancelling any interest or charges
a concern that firms may cancel or suspend credit cards for everyone in persistent debt, including those willing to engage and come to an agreement. In these circumstances, firms are not allowed to suspend a credit card without having an objectively justifiable reason.

Jonathan Davidson, Executive Director of Supervision for Retail and Authorisations at the FCA, said:

'Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly. If a customer cannot afford the firms proposals for how to do this, the firm must offer forbearance, potentially including reducing, waiving or cancelling any interest, fees or charges.

'My advice to consumers is dont bury your head in the sand. If you cant afford to meet the repayment schedule that the credit card firm is suggesting, dont be afraid to tell them. If we find firms are not offering their customers the appropriate level of help, we will not hesitate to take action.

'If the firms do this right, we estimate that this could save customers up to 1.3bn a year in lower interest charges.'

If consumers are concerned about persistent credit card debt and/or have multiple credit cards they are dealing with, they can find information about free debt advice from Money Advice Service.