FCA orders credits card firms to review their approach to borrowers stuck in persistent debt

Over £1.3bn could be saved by people in the UK if credit card companies altered their approach to customers who have been in debt for 36 months or more.

The Financial Conduct Authority (FCA) has penned an open letter to the CEOs of credit card companies in the UK to ensure that businesses will comply with the rules regarding customers in persistent debt.

The letter urged the companies to do more to assist people who had been caught in a cycle of persistent debt for three years. It encouraged firms to propose and agree plans with customers to resolve the situation. The FCA encouraged the firms to look into and review different areas of their process to guarantee the companies work in the best interest of the consumers.

Firstly, the FCA stated it was concerned that customers would not respond to communication issued by the firms about their debt. Therefore, the firms were told to make sure they ask the customers to contact the company to confirm their situation.

Secondly, the financial watchdog was also worried that the repayment options suggested by the companies were not reasonable or sustainable for the clients. If that happened to be the case, the FCA stated that customers must be treated with forbearance and due consideration. One way to do that could, for instance, be to reduce, waive or cancel any interest or charges.

Thirdly, the FCA was concerned about the strategy of either cancelling or suspending the credit card of someone in persistent debt, even those who would be willing to engage and come to an agreement with firm. In those circumstances, firms were reminded that they are not allowed to suspend a credit card without having an objectively justifiable reason.

“Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly,” said Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA. “If a customer cannot afford the firm’s proposals for how to do this, the firm must offer forbearance, potentially including reducing, waiving or cancelling any interest, fees or charges.

“My advice to consumers is don’t bury your head in the sand. If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them. If we find firms are not offering their customers the appropriate level of help, we will not hesitate to take action.

“If the firms do this right, we estimate that this could save customers up to £1.3bn a year in lower interest charges.”

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