FCA Proposes New Regulations For Credit Card Companies
UK’s financial watchdog, the Financial Conduct Authority (FCA) has said that credit card companies must take action in support of those credit card holders who are perpetually in debt. The FCA is proposing a range of new measures towards that specific goal.
According to a recent report, around 3.3 million Britons are in persistent debt, often paying a higher amount in interest and charges than their original debt over a period of 18 months.
The regulator said that such customers were highly profitable for lenders who rarely took steps to help them out.
The FCA has estimated that for every £1 repaid, the customer actually pays out £2.50. As per the Bank of England, spends on credit cards in the country is now at its highest level since February 2006, with the outstanding amount hitting over £67 billion. Keeping this in mind, the FCA has suggested a new set of rules that aim to push banks and other financial institutions towards helping such customers.
The measures include urging customers to make faster payments if they can afford it and providing support like proposing a repayment plan to customers who are in debt for over 18 months. In cases where the customer doesn’t respond or is not able to make quicker repayments, the card may be suspended.
Lending companies would also be required to reduce or even cancel interest and charges related to the cards owned by those unable to clear their debt. The watchdog said that such measures will help the customers pay off their pending debt faster as they would not be paying large sums towards the interest.
According to the regulator, the rules might result in savings to customers in the range of £3 billion to £13 billion by 2030. The process of confirming credit card limits will also undergo a change . New customers will be able to decide how their credit limit changes and it will be made easier for existing customers to decline increases in their limits.
The regulator also pointed out the importance of intervening at earlier stages of debt was important and that lenders must use available data to identify at-risk customers and take necessary steps.
In a statement, Andrew Bailey, FCA chief executive said
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.
Bailey said that the new measures were based on an extensive study of the market. The proposal is now open for public consultation which closes on July 3.
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