Credit card companies ordered to help customers with persistent debt

Published by Adam Williams on 27 February 2018.
Last updated on 27 February 2018

Credit card companies ordered to help customers with persistent debt

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.”

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How is it that forcing credit

How is it that forcing credit card customers with persistent debt problems to repay the balance in full, is considered helpful by Barclays! Surely the intention of the FCA's review and new rules on credit card debt is meant to alleviate financial problems for those trapped in a never ending cycle of debt, not add to them.

Here is the email sent out by Barclays.

New rules to help credit card customers

New rules have been introduced by the Financial Conduct Authority (FCA) with the aim of helping credit card customers avoid long-term debt.

What’s changing

If you’ve made minimum or low payments over the last 18 months, you may have paid more in interest, fees and charges on your Barclaycard than towards paying back what you’ve borrowed. And under the rules, this means your account is in something called ‘persistent debt’.

How will you know if your account’s in persistent debt?

We’ll get in touch if it is – and we’ll send you a personalised amount to help you get out of persistent debt, save money on interest and potentially take years off the time it takes to pay back what you’ve borrowed.

We’ll then review how you’re doing with trying to pay more off each month for the following 18 months.

If you’re still in persistent debt after this time and can’t increase your payments, then to protect you from getting into further debt, we’ll have to suspend your Barclaycard. This means you won’t be able to spend on it and you’ll need to repay your balance.

At the moment you don’t need to do anything about this – we’ll let you know if this affects you.