The Financial Conduct Authority (FCA), which regulates the conduct of financial services firms in the UK, has today released a new consultation on remedies to address issues of persistent debt and identifying customers in potential financial difficulty. The consultation follows from a market study the FCA carried out into the credit card market. The market study found that competition worked reasonably well for most customers but that there were issues with a minority of customers remaining in debt for long periods of time.
The FCA has set out a range of remedies including measures to make switching provider easier, better notification of when an introductory offer is expiring and giving customers greater control over whether and how their credit limit can be increased by a bank.
The FCA has defined persistent debt as a situation where a customer pays more in fees and charges than they do the principal of their debt. One of the key remedies requires providers to engage these customers to inform them that they are in persistent debt. If customers remain in persistent debt for a further 18 months providers will be required to offer customers repayment options. If customers do not respond providers are likely to have to suspend their credit card.
Phil Sneade, working in Frontier’s Financial Services practice, said “The FCA has rightly identified that a minority of customers are, for varying reasons, in persistent debt. While the remedies may go some way to alleviate the issue, the concern must be that some customers may turn to other credit products. The FCA has been looking across a range of credit products, including overdrafts and high-cost credit, but has so far done so in a silo fashion. There would be real value in thinking about remedies across these products, fully addressing issues like persistent debt or financial resilience no matter what credit product a customer is using.”
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