Credit card firms may have to cut or scrap fees for those in persistent debt, says FCA

3 February 2020

The financial watchdog has thrown a lifeline to millions of people in debt and at risk of having their accounts suspended

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Credit card companies must cut or waive fees for people in persistent debt rather than issuing them with blanket suspensions, the UK financial watchdog has announced.

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.

It says that if a customer can’t afford to pay, the firm may have to consider either waiving or cutting any interest or charges.

The watchdog has also told firms that they are not allowed to suspend a credit card without having an objectively justifiable reason.

Lenders were told by the FCA in 2018 that they must help people who have been persistent debt for three years by agreeing plans with them to resolve the situation.

Under the rules, credit card firms were told to contact customers who had been in persistent debt for 18 months and making low or minimum payments. Customers were then given a further 18 months to make increased payments.

The FCA was concerned that if customers had not increased payments or responded to letters from their credit card provider, some providers may have been planning a blanket suspension of their cards. 

Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, says: “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 firm’s 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 don’t bury your head in the sand. If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t 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."

Persistent debt

A persistent debt is one when where you pay more in interest and charges on your credit card than on repaying the amount borrowed.

Around four million people in the UK have persistent high levels of credit card debt, which they struggle to repay.

The FCA estimates that getting customers out of the debt cycle could save them £1.3 billion a year in lower interest charges.

Peter Tutton, head of policy at debt charity StepChange, says: “The FCA is unequivocal that firms should not cancel people’s cards wholesale.

“We particularly welcome the regulator telling firms to include in their letters a reminder that forbearance is available if people cannot afford what is suggested, and that they should signpost to independent advice for those receiving letters from more than one card provider.”

Rachel Springall, finance expert at Moneyfacts, says: “The FCA may well have thrown struggling credit card borrowers a lifeline today, as its warning could stop lenders from cancelling a credit card without a justifiable reason.

“Since the persistent debt proposals were announced, credit card providers have cut down the length of interest-free balance transfer offers, of which there is a record low amount of deals available now. Once the longest offer was for a 43-month interest-free balance term, while the longest today is just 29 months, a significant difference.

“Hopefully this interjection from the FCA will protect vulnerable consumers who need more guidance on ways to reduce their debts. However, if card providers are forced to reduce or abandon interest charges on debts, then this could impact the range of credit card deals that they are prepared to offer overall.

Reducing your debt

Setting a budget is often the first step to help you get on top of your finances. Knowing how much you have coming in every month and what you need to spend helps you work out the best way to deal with your debts.

Some debts are more important to deal with than others, so make sure you prioritise those first.

Although credit card interest might be higher than your mortgage, missing mortgage payments can have more serious consequences as you could lose your home.

Credit card debt can be expensive, so it makes sense to pay this off as quickly as possible.

Council tax is another important bill to keep on top of. You could be sent to prison for up to three months if you fail to pay it.

Balance transfer cards allow you to consolidate all your debt in one manageable payment. Transferring over to a credit card that offers 0% interest on purchases can make debt repayments easier.

Some of the best deals will allow you to borrow for more than two years, giving you extra breathing space to pay off your debt.

Where to get help

StepChange is a charity that offers free and confidential debt advice over the telephone and online. To get in touch, call 0800 138 1111 or go to its website at stepchange.org.

National Debtline is a free telephone debt advice service for people in England, Wales and Scotland. Go online at nationaldebtline.org or call 0808 808 4000.

Citizens Advice and Citizens Advice Scotland provide face-to-face support at more than 3,500 locations across the UK.

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