I’ve received a persistent debt letter from my credit card company

If you’ve received a persistent debt letter from your credit card provider, you may be wondering what it means and how you should respond. ‘Persistent debt’ is a term used by the Financial Conduct Authority (FCA) and means you’ve paid more in interest, fees, and charges than you’ve paid off your credit card over an 18-month period.

In March 2018, FCA rules were introduced to make credit card and store card companies act in relation to their customers’ persistent debt - they were instructed to send out letters to warn customers of the dangers of their situation.

What is ‘persistent debt’?

The Financial Conduct Authority’s official definition of persistent debt is when consumers, “over a period of 18 months, have paid more in interest, fees and charges than they have repaid on the principal balance on their card.”

It becomes increasingly difficult to deal with and escape from persistent debt the longer the situation is allowed to continue, and in the worst-case scenario it can lead to sequestration - the Scottish term for bankruptcy.

This is why the FCA took action to help people in debt become more aware of their situation and how it can escalate, and importantly, to deal with it before it’s too late. The new rules meant credit card and store card firms had to contact people in persistent debt, but also to monitor the situation at regular intervals.

What your credit card company must do

Credit card and store card companies must analyse all their customers’ accounts to check for instances of persistent debt, send out letters accordingly, and lay out options for repaying more to the credit card balance.

• After 18 months’ of being in persistent debt: they’ll ask you to contact them to confirm your situation, and let you know the ramifications of not taking action. They may suggest that you pay more off your balance each month, so that you can escape persistent debt.   
• After 27 months: if you’re still in the same situation, card providers need to contact you again and suggest ways to pay more off your credit card or store card balance
• After 36 months: the lender will send an ‘action’ letter, potentially offering you a defined repayment plan so you can pay more off your balance, or asking you to contact them if you can’t afford to pay the sum suggested. Depending on your ability to pay, they can suspend the card to prevent your situation worsening and your debt escalating. Their repayment suggestions should be ‘reasonable’ and with the aim of paying off your balance within 3-4 years.

If you’ve received a persistent debt letter and aren’t sure how to proceed, Scotland Debt Solutions can help. We specialise in helping people in Scotland to escape unmanageable debt, and can offer you a free same-day meeting at one of our offices around Scotland. Please call one of the team to find out more.