FCA proposals could save consumers £1.3bn

The FCA published the updated consultation this week, it follows a paper published in April 2017 on remedies to help millions of people get out of expensive longer-term credit card debt.

These remedies include firms, at designated timeframes, prompting customers to make faster repayments or proposing repayment plans, as well as intervening earlier if customers are struggling to repay. 

It also proposes that where a customer cannot afford any of the options proposed to repay their balance more quickly, firms must take further steps to assist them to repay the balance in a reasonable period, for example by reducing, waiving or cancelling any interest or charges.

The FCA said they have received widespread support for these proposals, which are expected to lead to savings for customers from lower interest payments as a result of faster repayment. 

The FCA expects that the savings would peak in the first few years of the proposed rules being in place, at between £310m and £1.3bn per year, before reducing as fewer customers get into persistent debt over time. 

Andrew Bailey, chief executive of the FCA, said: “The proposals we are introducing will save consumers billions of pounds by reducing longer-term borrowing on credit cards, which can be very expensive and can hide real financial hardship. We remain committed to action to protect consumers in the credit card market as soon as possible.” 

The FCA’s remedies are based on its in-depth study of the credit card market, which analysed 34 million credit card customers’ accounts over five years and surveyed nearly 40,000 consumers to build up a comprehensive picture of credit card use. 

The FCA also wants to ensure that customers are not given unaffordable increases to their credit limits and that they have proper control over those limits, and has agreed voluntary measures with the industry to address this. 

These include customers in persistent debt for 12 months not receiving offers of credit limit increases which would result in around 1.4m accounts per year not receiving such offers. 

Dan Wass, director of banking and insurance at Nationwide Building Society, said: “As a mutual owned by and run for our members, Nationwide designs its credit cards with the mindset that customers should be firmly in control of their money. This is why we don’t offer automatic increases to limits, and haven’t done so for a number of years. 

“As an industry we need to work collectively and address persistent debt.  We believe the approach we take is fair, transparent and manageable for customers.”

The consultation is open to feedback for six weeks, ending on January 25 2018, and the FCA expects to make new rules as early as possible next year.