New FCA Proposal – Tough Rules to Cut Billions from Credit Card Debt
Tougher rules to get millions of people out from long-term credit card debt have been proposed by the Financial Conduct Authority (FCA) which will require credit card firms to prompt around 3.3 million customers who have been in “persistent debt” for 18 months to make faster payments, reports Roger Baird in the International Business Times. The watchdog describes customers in persistent debt as ‘those who spend more on paying off interest and other charges than the underlying debt’.
The FCA adds that 1.8 million customers have been in persistent debt for two consecutive periods of 18 months, according to its recent study of the UK credit card market. If customers are still under persistent debt 18 months after first being contacted by their credit firm, the companies must then propose a repayment plan, according to the FCA. Customers who do not respond, or refuse to take up a repayment plan, will have their cards suspended.
FCA Chief Executive Andrew Bailey 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,” adding that to help customers weighed down by debt firms must take such steps as “reducing, waiving or cancelling any interest or charges”. The FCA said it would expect firms to suspend a customer’s card during this period.
Jonathan Davidson, director of supervision – retail and authorisations at the FCA, said that the consumer credit market is constantly changing in line with the society it serves and the FCA has to keep building and rebuilding our understanding of consumer behaviour in order to maintain a model of credit regulation that works for the long term.
“Customer wellbeing should be at the heart of decision-making in firms”, explained Mr Davidson, adding that “dialogue with firms is hugely impactful in informing our thinking. It is vital that the channels of communication between the industry and the FCA remain open.”
The measures will mean customers will save between £3bn ($3.8bn) and £13bn ($16.2bn) in repayments by 2030.
MediusUK.com is a leading independent regulatory consultancy. Director Steve Bailey confirmed that “many organisations, including the Tier 2 banks, will be subject to these wider Consumer Credit regulations. A significant number of commercial organisations will even be unaware that they are subject to FCA regulations, where to go to get authorised, and the time required to attain authorisation. Just this week we assisted a firm that had overlooked its annual submission to the FCA, did not know how to go about it, and was about to incur late filing penalties as well as FCA scrutiny.
“We have seen a significant increase in the number of our clients using Medius to provide outsourced compliance solutions as a highly cost effective resource to address their regulatory requirements.”
New rules to get millions of people out from the burden of billions of pounds of long-term credit-card debt have been proposed by the financial watchdog