Credit card firms would have to take active steps to help customers in persistent debt, under new rules proposed by the Financial Conduct Authority (FCA) today.
The proposals follows the regulator's study of the UK credit card market, which found significant concerns about the scale, extent and nature of problem credit card debt.
The FCA has estimated some 3.3 million people are in persistent debt, with more than half - 1.8 million - for two consecutive periods of 18 months. Its new proposals require firms to take steps to help customers repay their balances more quickly and to offer further assistance to those who cannot.
Under the FCA's definition, credit card customers are in persistent debt if they have paid more in interest and charges than they have repaid of their borrowing, over an 18-month period. Customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them.
FCA chief executive Andrew Bailey (pictured) said: "Persistent debt can be very expensive - costing customers on average around £2.50 for every £1 repaid - and can obscure underlying financial problems. Because these customers remain profitable, firms have few incentives to intervene. We want to change this situation so firms and customers will deal with outstanding debt more quickly, and avoid persistent debt in the first place."
Under the new rules, firms will have to take a series of steps to help customers in persistent debt. When a customer has been in persistent debt for 18 months, firms will be required to prompt them to make faster repayments if they can afford to do so.
If a customer is still in persistent debt after a further consecutive 18-month period, firms must take steps, such as proposing a repayment plan, to help them to repay their outstanding balances more quickly. Customers who do not respond, or who confirm they can afford to repay faster but decline to do so, would have their ability to use the card suspended.
Signs of financial difficulty
Money Advice Service head of debt advice Caroline Siarkiewicz said: ""With the information they hold on their customers' finances, the credit card industry is well placed to identify and support people in or at risk of problem debt."
In addition to measures on persistent debt, the FCA is also proposing to require earlier intervention by firms in response to signs customers are in financial difficulty, building on an existing rule that requires firms to monitor a customer's repayment record for signs of actual or potential financial difficulties.
The regulator said: "Under these new proposals, it is expected firms would do more to use the extensive amount of data available to them to identify customers in difficulty and take appropriate action."
The FCA's consultation on persistent debt and earlier intervention remedies will close on 3 July 2017.
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