New credit card rules could save consumers up to £1.3bn

The FCA estimates the changes will save consumers between £310m and £1.3bn a year in lower interest charges.

The new rules will come into force on March 1 2018, but firms have until September 1 2018 to comply.

The changes will provide more protection for credit card customers in persistent debt or at risk of financial difficulties.

The changes are being introduced following a comprehensive study of the credit card market, by the FCA. The study analysed the accounts of 34 million credit card customers over a period of five years, and surveyed almost 40,000 consumers.

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. The regulator said there are a total of four million accounts in persistent debt and firms have few incentives to help these customers because they are profitable.

Under the new rules firms will be required to take a series of escalating steps to help customers who are making low repayments over a long period, beginning when the customer has been in persistent debt 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 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 show the customer forbearance. This may include reducing, waiving or cancelling any interest, fees or charges.

Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit. Under the measures agreed by credit card firms, customers can opt-out from receiving automatic credit limit increases.

Customers in persistent debt for 12 months will not be offered credit limit increases; this should result in around 1,400,000 accounts per year not receiving such offers.

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.”

Firms who do not comply with the new rules could be subject to action by the FCA.

Peter Tutton, head of policy at StepChange Debt Charity, said: “The new rules do not address the continuing risk that firms will allow new profitable customers to rack up expensive debt for a long period - only to inflict unattractive compulsory action on them further down the line. The regulator will need to keep this under scrutiny. The FCA says it plans to review the effectiveness of the new rules in 2022 or 2033 but we would urge earlier intervention if needed.”

Read the policy statement here.