FAQs on FCA proposal for helping consumers with persistent credit card debt

By Marianne Curphey

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If you are one of the 3.3 million people in the UK who have been struggling to repay credit card debt for more than 18 months, your credit card company could soon be under a new obligation to help you.

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Industry responds to FCA proposal

Here's what industry experts have to say about the FCA's proposal on persistent credit card debt.

In July 2016, the Financial Conduct Authority (FCA) published its market study, which found that while the market works for most consumers, there was significant cause for concern about the "scale and persistence of potentially problematic debt".

In response to this, the FCA published a proposal on 3 April 2017 to "tackle persistent credit card debt and encourage earlier intervention". The proposal says credit card firms need to work more closely with people in debt and help them before their debt becomes long-term and problematic.

The suggested rule change could result in credit card companies reducing, rescheduling or even cancelling any interest or charges for customers with serious debt.

What is ‘persistent debt'?
The FCA has identified a section of the public who struggle with "persistent debt" - that is, people who have paid more in interest and charges than they have repaid toward the principal over an 18-month period.

"Persistent debt can be very expensive - costing customers on average around £2.50 for every £1 repaid - and can obscure underlying financial problems," Andrew Bailey, FCA Chief Executive, said in a statement.

"Because these customers remain profitable, firms have few incentives to intervene," Bailey stated. "We want to change this situation so that firms and customers will deal with outstanding debt more quickly, and avoid persistent debt in the first place."

At present, credit card companies are not obliged to do anything to help them clear this debt. Under the new proposal, firms would have to identify and intervene to help their customers.

What are the proposed rules?
The FCA proposes that credit card companies use the data available to them to identify consumers who are at risk of financial difficulties. This data includes repayment histories, among other statistics that credit card companies already keep on file.

  • When customer has been in "persistent debt" for 18 months, credit card companies must prompt them to make faster repayments.
  • If the consumer remains in persistent debt for another 18 months, the credit card firms must take further steps, such as proposing a repayment plan to help them repay their outstanding balances more quickly.
  • If consumers do not respond to firms' attempts to help, or if they can afford faster repayment but refuse to do so, the card company could suspend the credit card.
  • If a consumer cannot afford any of the proposed options, the credit card firms must assist them in repaying the balance in a reasonable period. They could, for example, reduce, waive or cancel interest and other fees. However, the customer's ability to use the card would likely be suspended until the account is current.

How much money would be saved?
The FCA says by 2030, it expects savings to customers would reach a total of between £3bn and £13bn, depending on how firms and customers respond.

In addition, consumers will have more control over their credit limits.

When would the rules take effect?
After a consultation period closes in July, the FCA will review feedback and will likely publish a policy statement later in 2017.

Can I do anything now?
The FAC is accepting comments on the proposals until 3 July 2017. You can comment by filling out an online response form, emailing cp17-10@fca.org.uk or writing to Oliver Morgans, Strategy & Competition, Financial Conduct Authority, 25 The North Colonnade, London E14 5HS.

For more information, you can visit the FCA website and the FCA's page regarding the consultation on persistent debt and earlier intervention remedies.

Source: FCA

See related: Extreme, creative ways to clear debt, 4 wrong ways to pay credit card debt, Old debt? You may be covered by statute of limitations

Updated: 18 April 2017