The Financial Conduct Authority (FCA) has said that credit card firms must start doing more to help the 5 million people trapped in a circle of debt. According to a review conducted by FCA, it claims that customers will take more than ten years before paying off credit card debts in full, based on their current repayment patterns.
FCA has proposed new rules requiring credit card firms to notify consumers via SMS and email, informing them that introductory deals are about to end to help tackle the issue.
Chris Woolard, FCA’s director of strategy and competition said:
“We remain concerned about persistent and potentially problematic credit card debt.”
FCA also found that 1.4 million people are barely making the minimum required payments on their credit cards for the past three years. Of the 1.4 million customers, also over the past three years, almost half have had to borrow more than 90 per cent of their credit limit, The Independent reported in a recent review.
It came to light that the reason companies have done so little to help their customers resolve these issues is due to the profits and margins being made on this high-interest rate, supposedly short-term, debt.
Although the watchdog found that for most consumers’ competition is working relatively well, like FCA, it also claimed that credit companies could and probably should be doing more to help reduce their customer’s debt burdens.
“Firms do not have strong incentives to help customers out of persistent credit-card debt,” The FCA said.
Chief executive of the Money Advice Trust, Joanna Elson, the charity running National Debtline, said:
“We need to do more to help this group of people, who are just about keeping their head above water without making a serious dent in repaying what they owe.”
The Regulator began an investigation in November 2014 which found that a significant number of consumers barely making it through the struggle of debt had now become a problematic cause for concern.
Currently, lenders and investors are not required to inform consumers of such introductory deals ending, leaving many customers hit with higher payments without being aware for some time. A large number of credit cards attract potential customers with 0 per cent interest rates, however after the introductory period ends rates are commonly between 15 and 40 per cent per year – something that is not always clearly stated.
It’s been recommended that companies need to begin encouraging customers to pay off their debt quicker where possible, rather than advising to make the minimum repayments which can lead to the issue that it has.
However, most industry respondents to the FCA’s review have objected to a requirement for customers to opt-in for credit limit increases on cards, and are not confident in adopting proposals made.