The Financial Conduct Authority (FCA) has today published its final policy statement on new rules for the credit card market.
The FCA estimates the changes will save consumers between £310 million and £1.3 billion a year in lower interest charges.
The new rules come into force on 1 March 2018, but firms have until 1 September 2018 to comply. The changes will provide more protection for credit card customers in persistent debt or at risk of financial difficulties.
The changes are being introduced following a comprehensive study of the credit card market. The study analysed the accounts of 34 million credit card customers over a period of five years, and surveyed almost 40,000 consumers.
Christopher Woolard, Director of Strategy and Competition said:
'These new rules will significantly reduce the numbers of customers with problem credit card debt. Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time - without making much headway on the outstanding balance.
'Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help.'
Figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing. There are a total of 4 million accounts in persistent debt and firms have few incentives to help these customers because they are profitable.
Under these new rules firms will be required to take a series of escalating steps to help customers who are making low repayments over a long period, beginning when the customer has been in persistent debt over 18 months. After this time firms need to contact customers prompting them to change their repayment and informing them their card may ultimately be suspended if they do not change their repayment pattern.
Once a consumer has been in persistent debt for 36 months, their provider will have to offer them a way to repay their balance in a reasonable period. If they are unable to repay the firm must show the customer forbearance. This may include reducing, waiving or cancelling any interest, fees or charges.
The FCA expects firms to take a more active approach in its monitoring of those customers who cannot afford to repay more quickly at that point. This may include reducing, waiving or cancelling any interest, fees or charges.
Firms who do not comply with the new rules could be subject to action by the FCA.
Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit. Under the measures agreed by credit card firms customers can opt-out from receiving automatic credit limit increases. Customers in persistent debt for 12 months will not be offered credit limit increases, this should result in around 1.4m accounts per year not receiving such offers.
PS18/4: Credit card market study: persistent debt and earlier intervention - feedback to CP17/43 and final rules
CP17/43 Credit card market study: persistent debt and earlier intervention remedies - feedback to CP17/10 and further consultation
Infographics: CP17/43: Credit card market study research, PS18/4: Helping customers in persistent debt, PS18/4: Helping customers in persistent debt - Our new rules
On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.