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Unrequested credit limit increases pushing people further into debt

3 June, 2016

Unrequested credit card limit increases are making debt problems worse for thousands of people and must be stopped, says StepChange Debt Charity.

The charity is calling on the Financial Conduct Authority to ban the practice and make credit limit increases something that people must opt-in to. The charity also says that in some instances, credit limits are being increased when people in financial difficulty ask their creditors for help.

A survey of the charity’s clients revealed that 54% of those with credit cards had seen their limit increased without them asking for it. Of those, 49% said this had made their debt problems worse. 11% of credit card users said they approached their creditors for help with financial difficulty and subsequently saw their credit limit increased.

Previous data released by the charity shows that over 200,000 people asked it for help with £1.7bn of credit card debt last year alone. Based on the survey results, the charity is estimating that more than 100,000 of its clients had their limit increased without asking for it in 2015 and as a result, over 50,000 saw their debt problems get worse.

Currently, credit card companies can decide to increase someone’s credit limit without asking them as long as they give them at least a 30 day window in which to decline. StepChange Debt Charity is urging the Financial Conduct Authority (FCA) to stop credit card companies increasing someone’s credit card limit without their consent. It wants credit limit increases to become ‘opt-in’, rather than opt-out, to help stop people being offered credit that they did not decide they needed and did not decide they could afford, and to prevent those who are already struggling from being pushed further into difficulty.

StepChange Debt Charity has also voiced concerns about credit limit increases being offered to people in financial difficulty. The survey shows that 11% of credit card users asked for help with financial difficulty and their creditor responded by increasing their credit limit. The charity says that offering people more credit when they are struggling can push them further into debt and that banks not only need to ensure they are carrying out thorough affordability checks, but also identify people who are in difficulty early and provide effective financial assistance, not more credit.

Credit cards are significant part of the debt landscape. StepChange Debt Charity says it helped people with £1.7bn of credit card debt last year, with the average balance at nearly £8,500. The figures come after the Bank of England’s figures showed that credit card balances had hit their highest ever levels in April, with the second highest annual increase for seven years.

Raising credit card limits puts people under pressure

When someone’s credit card limit is increased, it can put them under financial pressure if they take on this credit and later find they cannot afford to sustain it, particularly if their income drops. Large balances, combined with relatively low minimum repayments, can provide a false sense of security and a way to struggle through, but as the repayments become due, debts build up and interest is added, the situation can quickly become unmanageable. Previous research from StepChange Debt Charity has shown that three million people are already using credit as a safety net to cope with everyday expenses and meet emergency costs.

If someone suffers an income shock, such as reduced hours at work, job loss or illness, credit can make the situation worse. Our research shows that 14 million people suffer an income shock each year and 6.5 million used credit to cope, which makes them 20 times more likely to fall into problem debt.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said:

“Before taking out any form of credit, people need the opportunity to decide whether it is the right option for them and if they can afford it. When their credit limit is increased without asking, these key decisions are taken away from them and they face the risk of taking out credit they cannot afford, which can turn into costly, long-term debt.

“For people who are already struggling, an unrequested credit limit increase or being offered credit as a remedy can push them further into debt, with devastating consequences for them and their families. Rather than increasing credit limits, lenders need to identify people who are struggling early and offer effective, financial assistance.

“Credit limit increases must become ‘opt in’ so people are not presented with credit that they did not ask for and did not objectively decide they could afford. Opting-in, combined with better identification of people who are struggling, would be a significant step towards ensuring that more people do not become trapped in long term debt.

“With tens thousands of people coming to us every year with multiple credit card debt and over 2.5 million people in the UK are already relying on credit cards for day-to-day living, these changes are now even more critical.”

StepChange Debt Charity credit card statistics

Last year, StepChange Debt Charity dealt with nearly £1.7bn of credit card debt (£1,694,369,421), which represents 41% of the total amount of debt we see

  • 31% of the individual debts we see are on credit cards, making them the most common type
  • On average, clients with credit cards have outstanding balances of £8,403
  • 66% of our clients have at least one credit card and 38% of that number have 3 or more
  • Those with credit cards have an average of 2.5 credit cards

Notes to editors:

  1. In May 2016, StepChange Debt Charity conducted a survey among its clients, with 1,794 responding. Of those with credit cards, 54% had had their credit card limit increased without asking for it. 49% of those said it made their debt problems worse. 11% said they asked for help with financial difficulties and their creditor responded by increasing their credit limit.

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Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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© StepChange Debt Charity 2016