New Rules Will Force Credit Card Firms to Help Out Long-term Debtors
February 27, 2018
A new set of rules being introduced by the Financial Conduct Authority (FCA) will oblige credit card companies in the UK to help out customers who are persistently struggling to manage their debts.
The rules will mean that lenders will need to step in when their customers are only making low level payments on their debts and take a “series of escalating steps” to help them.
Specifically, credit card companies will be required to contact people who only make minimum repayments on their debts for 18 months to inform them that their repayment rates need to be stepped up.
Where customers are persistently in difficulty with their debts for 36 months, lenders will then be obliged to start suggesting ways for their customers to pay off their debts within a reasonable period, the FCA has said.
If no repayment plan can be established after 36 months of slow repayments then creditors will potentially need to reduce or waive some of the interest amounts, fees or charges that they would otherwise be asking of their indebted customers.
Companies that don’t comply with the FCA’s new rules will face the threat of punitive action by the regulator, which can issue any financial sector business with fines worth millions of pounds.
The FCA’s regulations will come into effect on March 1st 2018, with credit card companies being given until September to achieve full compliance.
According to the FCA, there are more than four million credit card accounts across the UK currently in persistent debt and consumers in these situations typically pay roughly £2.50 in interest and charges for every £1 that they initially borrow.
The new rules should also mean that anyone who is persistently indebted via credit cards for more than 12 months will not be offered any increases to their credit limits.
“Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help,” commented Christopher Woolard from the FCA.
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