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New FCA credit card rules welcome - but action needed to break cycle of debt build up

27 February, 2018

StepChange Debt Charity welcomes the FCA’s policy statement today on its actions in the credit card market but urges the regulator to keep a close eye on the effectiveness of its new requirements, especially for new borrowers.

The charity believes the steps being taken to address the problem of persistent debt among existing borrowers need to be matched by action to reduce the risk for new borrowers of building up the same problems. New rules will take effect in March and firms must implement them by September – but it could still be years before people currently building up persistent debt see the benefit.

Under the FCA’s plans, there is a welcome onus on firms to help customers with persistent credit card debt to take steps to pay more than their minimum requirement. This will enable them to clear their debt in the medium to long term rather than risk it building up indefinitely. However, the proposals fall short of requiring firms to change the way that they offer credit card borrowing to new borrowers. The risk of building up expensive, long term debt remains.

Among clients of StepChange Debt Charity, two thirds have credit card debt owing an average of around £8,000. Credit card debt accounts for around 40% of all the debt the charity deals with.

Peter Tutton, Head of Policy at StepChange Debt Charity said:

“We welcome the FCA’s recognition that solutions are needed for the 3.3 million people trapped in persistent credit card debt. But we remain concerned that the FCA has not yet taken adequate steps for the flow of new borrowers who may be heading towards persistent debt. There is a need to break the cycle of firms allowing customers to build up expensive long-term debt on what is meant to be a short-term borrowing facility.

“The new rules do not address the continuing risk that firms will allow new profitable customers to rack up expensive debt for a long period - only to inflict unattractive compulsory action on them further down the line. The regulator will need to keep this under scrutiny. The FCA says it plans to review the effectiveness of the new rules in 2022 or 2033 but we would urge earlier intervention if needed.”

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