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UK regulator proposes faster repayments, interest waivers to reduce card debt


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UK regulator proposes faster repayments, interest waivers to reduce card debt

The U.K.'s Financial Conduct Authority proposed new measures on April 3 that will see firms introduce faster repayment terms, or even reduce or waive interest charges in some cases, for an estimated 3.3 million credit card users trapped in "persistent debt."

The authority defined customers in "persistent debt" as those who have paid more in interest and charges than capital repayment over an 18-month period.

Under the proposed new rules, firms would encourage their customers to make faster repayments over the first 18 months, if they could afford to do so. If persistent debt continued over a second 18-month period, firms would then push for even quicker repayments. Customers not responding to lenders' inquiries or not repaying after confirming they could afford a negotiated plan, would have their credit card facilities suspended.

If a customer was still unable to repay the debt as per the options offered by the firm, the FCA proposed that the firm take further measures like reducing or cancelling any interest or charges.

"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," said Andrew Bailey, the FCA's CEO.

The FCA said the measures would save credit users between £3 billion and £13 billion by 2030 "depending on how firms and customers respond."

The consultation paper proposed a further requirement for firms to use their database to identify customers in financial difficulty and intervene at an earlier stage. It also included measures giving customers greater authority over increases to their credit card limits. The paper is open for comments until July 3.

Richard Koch, head of policy at the UK Cards Association, welcomed moves to tackle persistent debt, the BBC reported April 3. However, the organization was concerned that the proposals "will not fix the central issue that credit cards, which are supposed to be a short-term form of borrowing, often become long-term and expensive debt."