Credit card market to face competition probe
The UK's £150 billion credit card market will face a competition probe at the end of the year to look into how it treats vulnerable borrowers as well as how efficient the industry is.
The Financial Conduct Authority (FCA) will specifically investigate how the industry works with customers already in financial difficulty.
The announcement comes after research showed nine million Britons are considered to be in serious debt and that a considerable number are "survival borrowers" - those who often feel they have no option but to borrow money to help pay their bills.
FCA boss Martin Wheatley said: "The key priority here has to be those in the most vulnerable circumstances, many of whom are struggling to manage their credit card commitments, as well as other bills.
"Among the UK's 30 million plus cardholders, something like 3.7% make minimum payments for 12 months which is the equivalent to more than a million borrowers making 12 or more consecutive minimum payments.
"So, we know it's not uncommon for the most 'at risk' households to hold multiple cards and revolve multiple balances month-by-month."
He added: "There are some obvious questions and challenges here for regulators and industry: why are card issuers providing the means, in some cases, for the most indebted consumers to escalate their way into further debt?"
Debt charity StepChange said around 10% of the people who visit for advice have an average total debt of £27,000 and five or more credit cards.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.