British banks have been ordered to help people pay off their credit card loans, one of a series of new measures from the Financial Conduct Authority aimed at tackling the personal debt crisis.
The new rules are designed to “help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help”, the FCA’s Christopher Woolard told the BBC. Banks will still be able to suspend a credit card if a customer fails to make any progress in repaying debts.
According to the regulator, 30 million consumers have a credit card in Britain. An estimated 3.3 million customers are in persistent debt – defined as when they pay more interest and charges than they repay their balance over an 18-month period. These cardholders pay an average of £2.50 in interest and charges for every £1 of debt they repay.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Under the new rules, credit card firms will contact customers after 18 months of persistent debt suggesting they speed up repayments, and after three years of persistent debt offer customers a way to repay their balance in a reasonable period. That could involve cutting, waiving or cancelling any interest, fees or charges from that point.
The changes, which come into force next month and become compulsory from September, will save consumers between £310m and £1.3bn a year in lower interest charges, the FCA said.
“The aim,” says Reuters, “is to stop people using credit card debt as an expensive long-term loan that is not repaid.”
While welcoming the new rules, StepChange, a charity that advises people in debt, said it could still be years before people currently building up persistent debt see the benefit of the rules.
“The proposals fall short of requiring firms to change the way that they offer credit card borrowing to new borrowers. The risk of building up expensive, long-term debt remains,” the charity said.
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.