Author: Paul Keeley

 

The Financial Conduct Authority (FCA) has published proposals that could mean credit card companies cancelling any interest or charges in extreme cases.

Credit card companies would be expected to identify people in difficulty quicker and provide faster access to repayment plans.
The FCA defines someone as being in credit card debt if they have paid more in interest and charges than they have repaid of their borrowing over an 18-month period.

The main points in the proposal are:

  • After 18 months: Firms should prompt customers to make faster repayments, if they can afford it
  • After three years: Providers must propose a repayment plan to help clear debt more quickly
  • If a customer still cannot afford to repay the main debt more quickly, firms should consider reducing, waiving or cancelling any interest or charges

There have been concerns expressed over the personal debt levels in the UK. The latest figures from the Bank of England suggest that the annual pace of growth in credit card debt is at its fastest since February 2006.

FCA chief executive Andrew Bailey said that the cap on payday lending had protected consumers.

Now the whole of the high-cost credit market needed examination, rather than “picking off” specific issues, he said.

The FCA is launching its mission statement for this financial year.

The documents have considerable focus on personal finances – including plans to protect vulnerable customers, a study of long-term savings, and the completion of compensation for the mis-selling of payment protection insurance (PPI).

The deadline for PPI claims is August 2019 and the FCA is overseeing an awareness campaign to ensure pay-outs are claimed.

Mr Bailey said there had been a big increase in consumer borrowing, such as loans, overdrafts, credit card debt and car finance.

This echoes concerns raised by the Bank of England. Its Financial Policy Committee said there had been an acceleration in debt last year.

Consumer credit lending is still less than 10% of all lending by UK banks to household borrowers. It is also far smaller than mortgage lending, which amounts to 70% of loans to households.

But UK lenders stand to lose much more on their consumer credit loans if there is an economic downturn and their borrowers default on their credit card and other personal loans.

A Lords committee also recently called for stronger controls such as a cap on “rent to own” products.

The FCA is already conducting is own inquiry into overdrafts, door-to-door lending and other forms of “guaranteed” loans.

This includes considering whether a compulsory limit should be placed on overdraft charges. Consumer groups have consistently argued there should be one in place.

Below: Andrew Bailey FCA CEO

Breathing Space Bill

On the 24th February 2017 the Families with Children and Young People in Debt (Respite) Bill received its second reading in the House of Commons. It aims to give families with problem debts a “breathing space” of a year .The Bill aims to stop lenders adding any more interest and charges to debts for a year. Lenders also wouldn’t be able to take the matter further from a legal point of view within that year, by trying to enforce the debt. Enforcement action includes doing things like sending bailiffs round to your house and taking money straight from your wages or benefits.

This breathing space might last for even longer than a year, if someone can show that they can repay their debts in a way that’s affordable for them and within a reasonable time period. However, this would only be allowed when it was recommended by a debt advice agency.

The aim of this 12 month grace period is to allow people to get their affairs in order and put together a plan to repay their debts without the stress of collections influencing their decision making or the fear their debt situation may get worse. Proponents of the Bill hope this will mean that people in debt are in fact more likely to pay their debts, making the situation better for both them and their creditors in the long run.

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