Consumers with long-term credit card debt who only pay the minimum amount each month are not being given enough help from providers, the Financial Conduct Authority (FCA) has warned.
In the interim findings of its credit card market study, the regulator found that while the industry is working ‘reasonably well’ for most consumers, around two million people are in arrears or have defaulted on their card payments and 1.6 million are repeatedly making just the minimum repayment each month.
As those who make minimum repayments are profitable for providers, credit card companies have little incentive to help these customers the FCA said, whereas those who default are actively contacted as they are unprofitable.
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Credit card debt solutions
In order to address the problem the FCA has suggested the following potential remedies to help improve the market for consumers:
- Measures to encourage consumers to pay off debt quicker when they can afford to.
- Firms do more to identify earlier those consumers who may be struggling to repay and take action to help them manage their repayments.
- Measures to give consumers more control over credit limits and utilisation.
Which? executive director Richard Lloyd said: ‘We raised concerns about the current approach to minimum repayments with the Financial Conduct Authority so it’s good to see it focusing on this issue. We now need the regulator to ensure firms do much more to support vulnerable customers and help put them in control of their finances.’
Credit card market working ‘reasonably well’
The FCA found that the market was working well for consumers in other areas, with providers competing ‘strongly’ on some features and new firms entering the market in recent years. This competitiveness has led to consumers shopping around and switching providers to get the best deal.
To encourage further shopping around and switching in the market, the FCA has identified the following improvements:
- Measures to help consumers find the best deal, including giving consumers better access to their transaction data and boosting the role of comparison sites.
- Ensuring consumers can search the market without damaging their credit score, and prompting consumers when they are nearing the end of a promotional period.
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Christopher Woolard, director of strategy and competition at the FCA, said: ‘This is a really important market in the UK. Around 60% of adults have at least one credit card, and there is an estimated £61bn in outstanding balances.
‘Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.’
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