More than 3 MILLION Brits have credit card debt they cannot pay off as new rule cracks down on ruthless lenders
Credit card companies will have to do more to help customers, waiver interest and charges in extreme cases
CREDIT card companies will have to do more to help customers in persistent debt, under new rules proposed by the financial watchdog.
Around 3.3million Brits are in persistent credit card debt - paying more in interest and charges than they have repaid of their borrowing over eighteen months.
More than half (1.8million) of these borrowers have been in debt for two back-to-back periods of eighteen months.
Persistent debt costs customers on average around £2.50 for every £1 repaid.
The Financial Conduct Authority (FCA) said that under new proposals, lenders must take steps to help customers repay their balances more quickly, and to offer assistance to those who can’t repay.
Customers in persistent debt are profitable for credit card firms, and so they have little incentive to intervene, the Financial Conduct Authority (FCA) said.
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."
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Under the new rules, lenders will have to help customers who have been in debt for eighteen months by encouraging them to make faster repayments if they can afford to, and by proposing a repayment plan to help them pay back their outstanding balances more quickly.
The FCA also proposes that if a customer cannot afford to repay their balance more quickly, firms should help them by reducing or cancelling any interest or charges.
The watchdog expects these measures to lead to savings for customers of between £3bn and £13bn because of the lower interest payments as a result of faster repayment.
Hannah Maundrell, editor-in-chief of money.co.uk said that while it was a "relief" that the FCA is trying to tackle the problem, "extreme care and caution is needed, because those in persistent debt won’t be able to magic money to repay their credit card bill and make ends meet, especially with inflation on the rise."
Recent Bank of England data showed that credit card borrowing has risen at its fastest rate in more than a decade, raising fears of a new debt crisis.
Spending on plastic grew 9.3 per cent in the year to February, up from 8.6 per cent the month before.
Some £600million was piled on credit cards in February, with households owing £67.3billion, The Bank of England said.
5 steps to get out of debt
- WORK out how much you owe. If your debt repayments excluding your mortgage take more than 20 per cent of your net monthly income you are entering a danger zone and must take steps to cut back.
- Budget. Taking the time to come up with an accurate budget to help keep track of your spending makes it easier to come up with a schedule for repaying your debts.
- Be disciplined. Don’t borrow more money or take on any debts until you have repaid what you already owe.
- Switch energy supplier and bank accounts. Shopping around for cheaper gas and electricity can save you hundreds of pounds.
- Move your debt onto a 0 per cent balance transfer credit card, which will give borrowers more time to pay off their debt and are interest-free for a set period of time.
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