New rules have been published by the financial regulator to help the four million credit card customers struggling with persistent debt.
The Financial Conduct Authority (FCA) says that card companies currently have little incentive to help struggling customers, as these tend to be their most profitable users.
To combat this, the regulator will introduce new rules on 1 March 2018 which require firms to engage with customers who are in debt and making small repayments each month.
After 18 months of being in persistent debt, card companies will need to make some effort to help customers with their debt. Once a customer has been in persistent debt for three years, the provider will need to take steps to ensure the balance can realistically be repaid, rather than letting this debt spiral.
This could include reducing or cancelling any fees, penalties or interest charges that have been accrued.
Firms which do not meet these new standards will face punishment from the regulator, which could include a fine.
The FCA has been working on these rules since April 2017 and says these changes could save consumers £1.3 billion a year in interest charges. At present, those with persistent debt end up paying charges worth 2.5 times the amount they have repaid.
The rules are introduced next month but card providers have until 1 September 2018 to be fully compliant.
In addition to the new regulations, card companies have also voluntarily agreed that accounts which have been in persistent debt for 12 months or more will not be offered automatic credit limit increases.
‘Firms will have to help customers to break the cycle of persistent debt’
Christopher Woolard, executive director of strategy and competition, says: “These new rules will significantly reduce the numbers of customers with problem credit card debt.
“Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time - without making much headway on the outstanding balance.
“Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help.”