Credit card customers stand to save up to £1.3bn under new rules

The UK’s Financial Conduct Authority (FCA) has outlined new proposals designed to assist people struggling with financial issues.

In a bid to help individuals in ‘persistent debt’ – that is, those who have paid more in interest and charges than they have repaid of their borrowing in an 18-month period – the recommendations target credit card firms and lenders. They aim to rebalance concerns about the 'scale, extent and nature' of problem borrowing.

3.3 million Brits in persistent debt

The FCA found that 3.3 million people are in persistent debt – and more than half have been so for two consecutive 18-month blocks. These customers are extremely profitable for credit card companies, meaning that many in turn do not routinely intervene to help them. They also found that half of the UK population are ‘financially vulnerable', with 25- to 34-year-olds shouldering the biggest debt burden.

Furthermore, research for comparethemarket.com revealed not only that the average person in the UK owes £8,000 (outside of mortgage loans), but that almost a quarter of all British people said they were ‘struggling to make ends meet’.

Interest waivers under latest proposals

Under the FCA’s suggestions, lenders could be required to waive or cancel interest and/or charges for those in persistent debt. Credit card businesses will be asked to prompt customers to make faster repayments, cutting interest, or to intervene earlier if they are seen to be in repayment difficulties.

Andrew Bailey, FCA Chief Executive, said, “Persistent debt can be very expensive – costing customers on average around £2.50 for every £1 repaid – and can obscure underlying financial problems. Because these customers remain profitable, firms have few incentives to intervene. 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.”

Under the new framework, if clients remain in persistent debt after a further consecutive 18-month period, the companies will then be required to help them repay outstanding balances. The plans stand to save debtors up to £1.3 billion a year – and the FCA expects that, by 2030, the savings to customers would reach a total of between £3 billion and £13 billion.

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