New credit card rules to help those with persistent debt
New changes in credit card rules have been suggested by the Financial Conduct Authority (FCA), in a move that could help people dealing with persistent debt. Persistent debtors are categorised as such if they've spent more on charges and interest than on actual debt repayment over a period of a year and a half.
The ruling suggests firms take a more proactive approach towards settlement. This could include actions such as agreeing plans that enable debts to be cleared more quickly or waiving interest charges. The proposals are currently under consultation and a decision is expected in or after July.
Changes that are being discussed and suggested by the FCA will encourage firms to take charge of their customers’ debts. These include strategies such as having credit cards suspended while persistent debt is being paid off. Other options include reducing or waiving interest and similar surcharges or offering more choices around repayments to make the processes more straightforward and therefore easier to understand.
3.3 million people in the UK in persistent debt
A survey conducted by the FCA found that firms "did not intervene" because those in persistent debt were seen as "profitable". The study further estimated around 3.3 million people in the UK are in persistent debt – and more than half of this figure has been so for at least two consecutive periods of 18 months.
The FCA’s proposals aim to give customers better control of their debt by offering greater choices. 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."
He also noted, "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."
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