New credit card rules estimated to save consumers millions
Written by PayPlan on 27 February 2018The Financial Conduct Authority (FCA) has published new rules for the credit card market and is estimating consumers will save between £310 million and £1.3 billion a year in lower interest charges.
The changes announced today will offer more protection for credit card customers in persistent debt or at risk of financial difficulties.
The new rules will come into force on 1 March 2018. Under the rules, firms will be required to take a series of escalating steps to help customers who are making low repayments over a long period.
This will start when the customer has been in persistent debt for over 18 months. After this time firms need to contact customers prompting them to change their repayment and informing them their card may ultimately be suspended if they do not change their repayment pattern.
Once a consumer has been in persistent debt for 36 months, their credit card provider will have to offer them a way to repay their balance in a reasonable period. If they are unable to repay, the firm must support the customer by reducing, waiving or cancelling any interest, fees or charges.
Rachel Duffey, CEO at PayPlan said:
“We’re seeing more and more people using credit cards to live. By working closely with our partners, these news rules will help us to better identify those people at risk of financial difficulties and allow them to access regulated debt advice sooner.
“The new rules will also put customers back in charge of their credit cards allowing them to control limits and opt out of receiving automatic credit increases. We hope to be able to support more people to break the cycle of persistent debt.”
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“These new rules will significantly reduce the numbers of customers with problem credit card debt. Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time – without making much headway on the outstanding balance.
“Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help.”
The changes follow a comprehensive study of the credit card market which analysed the account of 34 million credit card customers over a period of five years, and surveyed almost 40,000 consumers. Firms will have until 1 September 2018 to comply with the new rules or face action by the FCA.
FCA figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing. There are a total of 4 million accounts in persistent debt little help available to these customers.
Filed under Industry News