FCA Considers Cancelling Credit Card Interest in Extreme Cases

The FCA has proposed a series of measures designed to help credit card users in persistent debt, including forcing providers to waive interest in some cases.

The FCA found that credit card providers are not doing enough to help the roughly 3.3 million customers who are in ‘persistent debt’. Credit card holders are in persistent debt, by the FCA’s definition, “if they have paid more in interest and charges than they have repaid of their borrowing, over an eighteen month period”. These kinds of customers are profitable to card providers - something the FCA believes may be behind the lack of action to help them.

As a result, they are proposing measures that “require firms to take steps to help customers repay their balances more quickly and to offer further assistance to those who can’t”.

The FCA’s chief executive, Andrew Bailey, explained: “Credit cards can be a very effective product for consumers, but a significant minority of customers experience real difficulties. We expect our proposals to reduce the number of customers in problem credit card debt, as well as putting customers in greater control of their borrowing.

“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 that firms and customers will deal with outstanding debt more quickly, and avoid persistent debt in the first place.

“The measures that we’re proposing today, alongside those already announced, are part of a package of significant improvements for credit card customers based on the comprehensive analysis of the market that we have carried out.”

Among the measures being proposed is a would-be requirement that credit card firms regularly contact customers in persistent debt. They would need to prompt the customers in question to accelerate repayments if they can afford to. If this proves ineffective, and the customer remains in persistent debt after another 18 months, then firms must “take steps, such as proposing a repayment plan”. If customers don’t respond positively to these final proposals, then their usage of the card in question should be suspended.

Importantly, the FCA have said, if customers are having genuine issues with affording any of the repayment options proposed, then credit card firms “must take further steps to assist them to repay the balance in a reasonable period, for example by reducing, waiving or cancelling any interest or charges”. Interest would only likely be waived while the card is suspended.

The UK Cards Association, a group representing British credit card companies, has responded positively to the FCA’s proposals.

Richard Koch, the group’s head of policy, said: “While the FCA's original report found that the credit card market works well for most people, we are not complacent and the industry remains committed to helping the minority of cardholders who do not use a credit card in a way which is in their best interest”.

Nonetheless, he said, the FCA’s proposals still require “careful consideration”.