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Report finds FCA “guilty of regulatory failure” on credit cards

The Financial Conduct Authority is failing to adequately protect consumers from high interest costs on credit cards, according to a report.

Based on analysis of Bank of England’s Household Debt Survey, almost half of the poorest households are using their credit cards to pay for food or other living costs or to deal with unplanned emergencies, the Centre for Responsible Credit, New Economics Foundation, Jubilee Debt Campaign and Research for Action found.


Many of these borrowers are still paying more than £2 for every £1 borrowed despite recent rule changes, the report said.


Credit card debt now stands at £72.4bn – around one third of all consumer credit lending, which at £217bn is the highest level on record.


The joint report also found:

  • Almost half of those spending more than one-quarter of their income on debt repayments – the threshold for what is considered over-indebtedness – earn less than £15,000 per year;
  • A third of all credit card borrowers have a balance that they cannot clear at the end of the month;
  • 18 percent are incurring debts on their credit cards to pay for food or other living costs and 12 percent to meet an unplanned emergency expense such as car repairs;
  • The percentage of people using their cards for these purposes increases to 40 percent among those living in households with pre-tax incomes of less than £15,000;
  • A further 20 percent of low-income credit card borrowers used their credit card to refinance existing credit card borrowing or to pay off other types of debt;
  • The credit card debts of these low-income borrowers averaged £2,900; 68 percent of their total consumer credit debt of £4,250;
  • These borrowers have an average total debt to income ratio of 50 percent, and their average credit card debt to income ratio is 34 percent.

The group said that the persistent credit card debt measures introduced by the FCA in 2018 are failing to adequately protect consumers from high interest costs and calls for a cap on the total cost of charges that borrowers pay.


Damon Gibbons from the Centre for Responsible Credit (CfRC), who conducted the research on behalf of the coalition, said: “It is outrageous that people using credit cards can still pay more in interest and fees than they would if they borrowed from a payday lender. This continues despite the FCA’s recent rule changes, which are inadequate to address problems in this market. Despite having the power to introduce a cap on the cost of credit card debt the FCA has conducted no detailed assessment of this option. Just as it did with payday lending, Parliament should now intervene and force the FCA to impose a cap.”


FCA annual report


The report comes less than a day after the regulator published its annual report, in which it outlined the key pieces of work it undertook in 2018/19. The FCA said it is consulting on the best ways to help increase the awareness and availability of lower cost credit and non-credit alternatives for vulnerable consumers.


Andrew Bailey, chief executive of the FCA said: “Over the last year, we’ve made a range of important interventions which have brought real benefits to consumers. This included the wide-ranging remedies we’ve introduced in the high cost credit market to reduce harm, banning the sale of binary options to retail consumers and reforms to the peer-to-peer lending market to improve consumer protection.”


The annual report showed the FCA had a total group income of £614.3m, primarily drawn from ongoing regulatory activity fees, which amounted to £521.3m or 84.9 percent of its take. Some £27.3m was generated by changes in the FCA’s scope, while £5m came from EU withdrawal fees.

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