Raising credit limits without consumers’ request should be banned, says Citizens Advice.
The charity has warned credit card firms are pushing consumers into long-term debt in its new report, Stuck in Debt, which examines consumer borrowing and debt problems in Britain.
Researchers found that nearly one in five people struggling with debts have had their credit card limit raised without them requesting it.
Citizens Advice is also concerned that firms are not providing support early enough to people who, despite meeting the minimum repayments, are struggling with long-term credit card debt.
The charity is calling for changes to protect people from falling into severe credit card debt, including:
The Stuck in Debt report found people struggling with long-term credit card debt were more likely to have their limit raised - nearly 20 percent of struggling credit card users had their limit raised in the past year without requesting it.
“Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support - rather than more credit”
Gillian Guy, chief executive of Citizens Advice, said: “The regulator must ensure lenders are taking into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances.
“Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support - rather than more credit.”
In March 2016, Nationwide Building Society changed its terms and conditions to rule out auto-credit limit increases.
Dan Wass, director of banking and insurance at Nationwide Building Society, said: “Allowing customers to decide whether or not they receive an increase to their credit card limit not only helps them stay in control of their money, but could also prevent them getting further into debt.”
Citizens Advice helped nearly 66,000 people with over 140,000 credit card debt problems in the last year. This included one pensioner who was repeatedly called by firms offering more credit cards - despite the fact that she could only afford to make minimum repayments on her existing cards.
She used the cards to meet her essential bills and ended up with a total of 21 credit cards and debts totalling £70,000.
The FCA has announced proposals to help those already in long-term credit card debt who are spending more on credit card interest charges than paying off the total amount they owe.
It says lenders should contact customers who have been in this situation for three years to arrange a plan to pay their outstanding balance more quickly.
Citizens Advice said lenders should be asked to intervene sooner - at the very latest after two years - to help people struggling with unaffordable debt.
Simon Cadbury, head of strategy and innovation at Intelligent Environments, said: “Our own research revealed that almost half of consumers would be less likely to go into debt if they had access to a digital money management tool. It’s now up to banks to build trust with their customers, providing them with the technology they need to stay on top of their finances, living stress free.”