Credit card 'off switches' not the cure for problem spenders

By Michael Lloyd

Most people have made a purchase on a whim - something they didn't really need - but it was a good deal, or it was at the check stand and looked appealing.

According to a recent survey from point-of-sale firm Display Mode, Britons spend an estimated £21.7 billion a year on impulse buys, often tempted by special offers, or a nagging feeling that they might miss out on a deal. The poll found 71% of respondents had bought items they never used. off-switch

For some, though, impulse buying is a serious, compulsive problem that leads to serious debt. This might be particularly problematic for those with mental health problems or drinking problems, who may make rash decisions. For these consumers, the combination of a credit card and 24-hour access to online retailers can spell big trouble.

Barclaycard's new ‘off switch' aims to curb impulse shoppers
Barclaycard has come up with an idea that it thinks might help binge spenders. The company is developing a credit card "off switch", which would allow cardholders to effectively disable their card at times they feel they might be vulnerable to making impulse purchases.

For instance, drinkers would be able to block their cards during times they are most susceptible to binge drinking, while people with mental health issues would have the option to switch off their credit during periods when they suspect their mood could trigger a spending binge.

Alternatively, the technology could limit spending over a set period, say, 24 hours.

Barclaycard says that while this off-switch feature is not available at present, it is something the firm is actively considering for the future.

There is some merit to the idea.

Some betting sites offer similar facilities that allow gamblers to set their own deposit limits. The National Lottery also offers spending controls, but it enforces a compulsory upper limit, stopping overly-enthusiastic players from spending more than £350 in a week, which is probably more than enough to be spending on scratch cards.

While Barclaycard's initiative is certainly well-intentioned, some experts have questioned whether the proposal might simply paper over compulsive spenders' problems, while doing next to nothing for people in large amounts of debt.

Closing the stable door?
The fact Barclaycard feels the need to provide this service suggests it might be lending to people it knows are not responsible enough to even be using a credit card. While the proposed off-switch might stop compulsive spenders using their Barclaycard at set times, it won't do anything to address the problems that are driving them to make rash purchases.

"Although we can see the initial benefits that this could have for problem spenders, more support needs to be given to tackle the issue in the first place," PayPlan Money Advisor Jane Clack said in an emailed response to questions. "Impulse buying and binge spending is a real concern, but the reasons behind it can be quite complex."

Being able to set card restrictions may help up to a point, Clack said, but it could potentially mask the problem, rather than solve it.

"The ability to buy as much as we want, 24 hours a day, may come from cards, but being unable to control this is often the result of boredom, loneliness and naivety," Clack said. "We believe that tackling these issues and educating people, before troubles arise, would reduce the need for these type of restrictions and help us all work toward a more financially savvy future."

Additionally, according to debt charity StepChange, the majority of its clients' credit card problems are not the result of impulse purchases or binge spending. The charity says its most indebted clients run up large credit card balances paying for everyday purchases such as food, clothing and utility bills.

"We estimate that over 2.5 million people are using credit cards just to get by and, although they are designed to be short-term products, many people are trapped in long-term, persistent and expensive debt," a spokesperson for StepChange said in response to emailed questions.

For these people, Barclaycard's off-switch will do little to address the fact they are paying large amounts of interest as a result of having no other choice but to use credit to make ends meet.

Rather than investing in stopping people making irresponsible purchases after they've had a few drinks, Barclaycard - and other issuers - might be better advised to focus more resources on customers who are in serious financial trouble, with no other option but to use expensive credit just to get by.

"Advances in technology can be a welcome addition to financial products, but there are serious problems with credit cards that will not be solved by an off-switch," the StepChange spokesperson said. "It is crucial that lenders ensure they are lending responsibly and intervene early to provide assistance to people who run into financial difficulty."

See related: Are you a candidate for Debtors Anonymous?, 'Retail therapy' not a myth -- we spend when emotional, Helping mental illness patients cope with debt

Published: 26 December 2016