Millions struggling to lose credit card debt

More than 3.5 million people are struggling to shake off credit card debt according to an interim report on the credit card market by the Financial Conduct Authority (FCA). 

The regulator said 2 million people have debts they are struggling to clear and 1.6 million people make minimum payments on their borrowing. The report also found that credit card lenders were less willing to help people who make minimum payments because they are highly profitable and that there are few incentives for firms to intervene with struggling customers who are at risk of falling into a cycle of debt. 

The interim report into the credit card market  also found that borrowers who default are unprofitable for firms, with a further 2 million people in the UK in arrears or on their credit card debt or in default. As a result, banks and other lenders contact customers who miss payments and offer them easier terms. 

Comment from the Financial Conduct Authority

Christopher Woolard, Director of Strategy and Competition at the FCA, said: “This is a really important market in the UK. Around 60% of adults have at least one credit card, and there is an estimated £61 billion in outstanding balances. 

“Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.”

Concern from charities 

StepChange Debt Charity

StepChange Debt Charity welcomed the FCA’s review of the credit card market.  It said: “We see too many credit users falling into financial difficulty and more is needed to ensure that what should be a short term product does not push people into unaffordable long term debt.

“Credit card debt is the single biggest type of problem debt we see; two thirds of our clients have at least one card and their average debt is more than £8,000. Last year, 14 million people suffered a shock to their income or a change in circumstances and 4.5m of them used credit to cope. People who use credit to cope are 20 times more likely to fall into problem debt than those who don’t.”

Citizens Advice

Gillian Guy, Chief Executive of Citizens Advice, said: “Mainstream debt problems from credit cards to formal loans, only tell part of the story. We are seeing increasing numbers of people struggling with priority debts, like council tax and rent arrears.

“It’s absolutely essential the Government ensures people can access independent advice and support on how to manage their finances and prevent problems arising in the first place.”

Proposed measures

The FCA found a range of potential remedies to make the market work better for consumers. In relation  to shopping around and switching, the regulator recommends measures to help consumers find the best deal by enabling better access by consumers to their transaction data and boosting the role of comparison sites. 

To reduce problematic debt, remedies include to give consumers more control over credit limits and utilisation, measures to encourage consumers to pay off debt quicker when they can afford to. The FCA also recommended that firms should do more to identify those consumers who may be struggling to repay and take action to help them manage their repayments. 

Source:
Financial Conduct Authority press release
Step Change Debt Charity press release
Citizens Advice press release