The FCA have enforced new credit card regulations to cut down on persistent credit card debt. But are they doing enough? Quick Loans Express explores credit card debt and whether the new FCA regulations will help consumers.
New Credit Card Regulations
The average debt per household including mortgages in the UK – was £57,830. Included in this number, was an estimated 3.3 million customers in credit card persistent debt. (The FCA defines this as paying more in interest and charges than the actual repayment balance over an 18-month period.) To tackle the problem of credit card debt, the FCA has instituted new regulations like they did in the instant payday loan industry. Quick Loans Express, a payday loans lender explores the new regulations and evaluates if they will help tackle persistent debt.
How bad is credit card debt in the UK?
According to the FCA, 30 million or 60% of consumers use a credit card in the UK. Of those, 3.3 million are in persistent debt. 89% who were in credit card debt 2 years ago are still in debt. It is not uncommon for consumers to shift debt from one credit card to another. The FCA is very concerned that cardholders pay an average of £2.50 in interest and charges for every £1 borrowed. This is contributing to a huge percentage of people plunging into a trap of debt. The Bank of England and the FCA proactively want to turn this around for people so that the UK can start climbing out of debt rather than falling deeper into it.
Why have the FCA introduced new credit card regulations?
Up until now, credit card firms have introduced very little to help customers climb out of their credit card debt. This is because debt is profitable to these firms. Therefore, the FCA felt that credit card firms must be regulated further to help people suffering from persistant debt. The FCA have also regulated the payday loans online industry and well as other financial services
Furthermore, the FCA and the Bank of England, are concerned that people are using credit card debt as a long-term loan that does not need to be repaid. The regulatory board and debt charities recognise that people don’t see credit cards as credit but an extension of their wage. Users see neither the consequences nor that the money they borrow doesn’t belong to them.
What are the new credit card regulations?
The FCA has ruled that British banks should help people pay off their credit card loans. Christopher Woolard, from the Financial Conduct Authority, told the BBC that this new ruling would help customers break the cycle of persistent debt and ultimately, it will ensure customers who cannot afford to repay more quickly, are given help.
Firstly, Credit card firms should suspend a customer’s credit card if they fail to make any repayments.
Secondly, under the FCA’s new rules, the credit card firm will need to contact the customer after 18 months of persistent debt. At this time, credit card firms should suggest to their customers to speed up their repayments. If there is no change after several prompts by the banks, the FCA expects the banks to show forbearance and lessen the debt load in some way. For example, reducing, waiving or cancelling any interest fees and charges over a reasonable period.
After 12 months of persistent debt, the credit card firm would not be allowed to increase a customer’s credit card limit. A total of 1.4 million accounts will not receive the offer of increasing their limit. Hopefully, this will stop the downward spiral into debt.
Finally, credit card firms must enable customers to opt out of the automatic credit limit increases on their credit cards.
When are the new credit card regulations set to be introduced?
The new regulations will come into force next month although the credit card banking sector have until September 2018 to comply. After this time, banks and credit card firms that do not comply with the regulations will face hefty fines.
Will the new credit card regulations help?
Debt charities consider the new credit card regulations a step in the right direction although they warn consumers that it may take time for those who are currently building up persistent debt to see the benefits. StepChange claim that these new regulations do not protect new customers from falling into debt in the first place and they argue that more work needs to be done to change the way people use credit cards fundamentally. “The proposals fall short of requiring firms to change the way that they offer credit card borrowing to new borrowers. The risk of building up expensive, long term debt remains,” StepChange said.