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Customers in "persistent" credit card debt will be given more help, including suspending card use and cancelling interest charges, according to new proposals from the City watchdog.
Around 3.3 million people are in persistent debt across the UK – defined as paying more in interest and charges than actually repaying the loan over an 18-month period.
Under the planned rules from the Financial Conduct Authority (FCA), credit card providers will have to take a series of steps to help customers get out of debt, rather than continuing to profit from them. These measures will save customers between £3bn and £13bn by 2030, the watchdog estimated.
The steps include prompting customers in persistent debt to make faster repayments if they can afford to, while customers still in persistent debt after a further 18 months will be offered help, such as a repayment plan.
Those that do not respond to their card provider or refuse to pay off debt faster will have their credit card suspended.
If a customer cannot afford any of the options provided firms will have to help them repay within a reasonable time frame. This could include reducing or cancelling interest and charges.
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Andrew Bailey, chief executive of the FCA, said: "Persistent debt can be very expensive – costing customers on average around £2.50 for every £1 repaid. Because these customers remain profitable, firms have few incentives to intervene."
Tom Lyon, of switching service uSwitch, said that the proposals are "goods news" for struggling credit card users, but that there is a danger credit card providers will prematurely cut off customers’ access to credit to meet the rules.
"Many people are reliant on their credit cards to make ends meet and for these consumers limiting their credit could throw them into even more difficult situations," he said.
This is the latest on the FCA’s ongoing work into fixing the credit cards market. It has previously proposed telling customers when a promotional offer is ending, giving them greater control over credit limit increases, and using data to identify customers in financial difficulty earlier.
Richard Koch, head of policy at the the UK Cards Association, a trade body, believes the FCA’s package of proposed measures is "robust" and will "address the concerns it has found".
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