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Credit cards, financial difficulty and persistent debt

StepChange’s policy briefing uses recent national polling to explain how credit cards can cause and deepen financial difficulty and draw customers into expensive long-term persistent debt—where customers have paid more in interest and charges than they have repaid of the balance in the last 18 months.

The briefing goes on to assess the regulatory framework for credit cards from the perspective of those struggling with financial difficulty and makes recommendations to the FCA on how it can improve its rules.

Read the briefing

About the briefing

Credit cards are the most popular consumer credit product: two in three UK adults hold a credit card and one in three has an outstanding credit card balance. But credit cards are also central to the emergence, deepening and harm of financial difficulty: two out of three people in serious problem debt have credit card debt.

Credit cards are closely linked with financial difficulty because of the way they are designed: the ‘low and grow’ model where credit limits start small and are increased as customers borrow more often draws struggling ‘credit-hungry’ customers into difficulty, unaffordable repayments and expensive persistent debt.

Key findings

  • Progress in reducing persistent credit card debt has faltered: FCA figures show that the number of customers in persistent debt decreased from an estimated 6% of UK adults (3.3 million) at the time the rules were introduced to 4% in 2022 but subsequently increased again by 2024 to 5%.
  • Those in persistent debt tend to be struggling financially: 8 in 10 find it difficult to keep up with household bills and credit commitments compared to 4 in 10 UK adults, while 1 in 3 (36%) are in serious problem debt compared to 7% of UK adults.
  • Risks factors for persistent debt like making systematic minimum payments are strongly associated with financial difficulty and low financial resilience.
  • Persistent debt is more common among financially vulnerable groups such as single parents and renters; we estimate one in four renters with credit card debt is in persistent debt, and renters are twice as likely to be in persistent debt as mortgagers.
  • Persistent credit card debt is also particularly concentrated in the subprime market: we estimate that almost half (46%) of those in persistent debt have subprime card debt.
  • The total amount paid in interest by customers with subprime cards stuck in persistent debt is too high: in a typical persistent debt repayment journey, we estimate a customer who borrowed £1,000 with an APR of 40% (a typical representative APR in the subprime market) would pay almost 1.2 times the amount borrowed, rising to 1.5 times for a customer with an APR of 60%.

The briefing shows that the FCA’s persistent credit card debt rules are not working well enough to prevent harm: financially vulnerable groups are being drawn into persistent debt by their circumstances and experience serious harm before firms are obliged to provide support.

Recommendations

StepChange is calling on the FCA to apply the Consumer Duty, with its emphasis on acting to deliver good outcomes and preventing foreseeable harm, to the problem of persistent credit card debt and shift the emphasis of its rules from dealing with harm that has already emerged to preventing harm from happening in the first place. The FCA should take three steps:

  1. Ensure its running account creditworthiness rules effectively prevent obviously unaffordable lending to financially vulnerable customers.
  2. Restart work to increase the minimum credit card repayment, ensuring payments are set at a level that is affordable and prevents expensive long-term debt that becomes a drain on the disposable income of financially vulnerable customers.
  3. Ensure the persistent credit card debt rules work for borrowers in difficulty, reducing the length of time before firms are required to intervene to support struggling customers and ensuring customers are connected with advice and support and provided fairer options to deal with persistent debt.

Want more information?

Email us at policy@stepchange.org