FCA Plans To Help Customers With Credit Card Debt

FCA plans to help customers with credit card debt

Consumers with credit card debt could benefit from greater help with their debt, if plans by the Financial Conduct Authority go ahead as planned. The FCA have put a proposal in place to ensure credit card companies are offering more help for those who have paid more interest and charges than they have paid back on their outstanding balance, within 18 months. This may be welcome news for borrowers who feel that they are caught in a never-ending cycle with their credit card debts and constantly fire-fighting, without seeing any noticeable difference.

 

FCA proposals

As part of the proposal, there would be three steps put into place, which credit card companies would need to follow for customers who are suffering as a result of long-standing debt. The first step would be for the credit card company to request that the customer starts to make quicker repayments, if it shows that they have been in regular debt for 18 months. If the debt continues onto a further 18 months, a repayment plan would then be put in place, so that customers can pay their debt back in affordable amounts. If the customer fails to make these payments, they would not be able to use their cards and in some cases, interest and charges would be cancelled to help the customer make repayments.

 

Credit card debts

An astounding 3.3 million people are caught in persistent debt and 1.8 million are experiencing this problem at least twice over 18 months. This figure shows how huge this issue is and how many people are struggling to make ends meet. The problem is much greater than most people would realise and for credit card companies, it is more beneficial to have customers in debt, as in many cases, all they are really doing is paying interest. The plans would mean that customers would save money and the total amount saved could be as high as £13 billion by 2030.

 

Help for customers

In addition to this, the FCA are looking for credit card companies to offer better financial help to their customers, particularly when they notice they are having financial issues. The proposal would require credit card companies to keep track of payments by customers and to use the data to understand when customer repayments are not as regular as they had been previously. It is also suggested that credit card companies would let customers know that they have the right not to be told of any credit limit increases, as this is what can quite easily cause credit card debts to spiral out of control.

 

Why credit card debt is so high

Although income levels have stayed the same, credit card debts have continued to increase. There is an average credit card debt of £2,500 per household and this is at the highest level in 11 years. In most cases, consumers are not using their credit cards for luxuries, they are using them to make ends meet and this worrying trend looks set to continue. With the cost of food and other bills on the rise, it is no wonder that households are feeling the pressure and hitting the plastic. Initial free interest periods, followed by high rates are causing consumers to take out credit cards under, what could be viewed as, false pretences. The introduction of contactless cards also makes it much easier for consumers to spend money quickly.

 

Credit card alternatives

Credit cards are not the only option and in fact, should be a last resort. It can be good to have a credit card for emergencies, but this can also prove too tempting for some consumers to resist. Saving your money is by far the most preferable option, or taking out a payday loan might end up costing less, as long as you pay it back as soon as it is due. The fact is that with credit cards, you don’t really feel like you are actually spending money, so the bills can be a shock, especially when interest is added. It is not always easy to avoid debt, especially if your income tends to fluctuate, but it is important to take the most sensible option, based on your own circumstances.