Credit Card Industry Facing FCA Investigation

December 1, 2014

Providers of credit cards and the associated services are to see their practices scrutinised by the Financial Conduct Authority (FCA), it has been announced.

The UK’s financial services watchdog is planning in particular to look at the way in which credit card providers promote their services and whether or not the interests of consumers and borrowers are being sufficiently protected in that context.

In statements announcing its intention to study the state of practices in the UK’s credit card markets, the FCA explained that it is concerned that a portion of British borrowers are using their plastic payment products unsustainably and in ways that can cause financial difficulties to mount up dramatically.

The FCA is also concerned that consumers often use credit cards in ways that are not in their best interests and could be avoided.

With these issues in mind, key questions to be addressed by the FCA’s study will be how easy it is for credit card users to shop around for rival products, how transparent the terms of credit card deals are and whether consumer behaviour is able to effectively drive competition among service providers.

Also to be looked at will be: “The extent of unaffordable credit card debt; in particular whether some consumers are over-borrowing/under-repaying on their balances and whether firms have incentives to provide unaffordable lending that works against the best interests of consumers.”

Summing up its concerns, the FCA said in a statement:

“Credit cards provide a free service for many, but the market may not be working well for certain groups of customers.”

Mike O’Connor, chief executive of the debt charity StepChange, welcomed the plans to look into the way credit card deals work and are marketed at British consumers.

“Too many people are using credit as a safety net when all too often it is a trap which leads to problem debt,” O’Connor said.

“Credit card debt is one of the most common debt problems we see,” he added.

Meanwhile, the UK Cards Association’s head of policy Richard Koch released a statement saying: “Credit cards are an important part of the daily lives of consumers, so it is understandable that the regulator is keen to explore how such an important sector is working.

“The industry has a long-standing commitment to responsible lending and transparency and over the last five years has introduced many changes including on credit limits and re-pricing of debt, improved transparency, and forbearance for those who find themselves missing repayments.”

In recent weeks, the FCA announced its plan to clampdown on the practices of payday loan companies in the UK that it views as being unfair to borrowers and British consumers. Among the legislation proposed by the financial services watchdog is a plan to force payday lenders to cap the amounts of interest they can charge their customers and a ban on dipping into customer bank accounts for repayments on more than two occasions.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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