Watchdog tells lenders they should cut or drop fees rather than issue blanket suspensions
Britain’s financial watchdog has warned credit card firms against the blanket suspension of cards of consumers who are stuck in a debt spiral, telling them to reduce or waive interest and other charges instead.
The watchdog has written to the bosses of credit card firms (to express) concern that they may cancel or suspend credit cards for everyone in persistent debt, including those willing to engage and come to an agreement. It told firms that they are not allowed to suspend a credit card without having an objectively justifiable reason.
Under the new rules, credit card providers, including Barclays, Lloyds and Royal Bank of Scotland, were forced to identify customers who had been in persistent debt for at least 27 months, and were given a further 27 months to convince customers to increase their payments. This means that from February, when the first 90 -month period draws to a close, customers who fail to respond or cannot afford higher payments could have their credit cards suspended.
As of November, there were 1. 96 million people stuck in persistent credit card debt where they end up paying more in interest, fees and charges than they are paying off their balance. The FCA estimates that getting them out of this cycle could save them up to £ 1.3bn a year in lower interest charges.
The watchdog is concerned that those borrowers may not respond to letters from credit card providers, which have been ordered to send at least three letters. It said that if customers cannot afford the options proposed by the firm, they must be treated with forbearance and due consideration.
Jonathan Davidson, the executive director of supervision for retail and authorizations at the FCA, said: “Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly. If a customer cannot afford the firm’s proposals for how to do this, the firm must offer forbearance, including including reducing, waiving or cancelling any interest, fees or charges.