Credit card firms must work to help customers trapped in debt - here’s what you need to know

This is what the financial watchdog told credit card firms (Photo: Shutterstock)

The Financial Conduct Authority has warned credit card firms that they must help customers in persistent debt.

The new rules laid out by the watchdog aim to help those trapped in cycles of debt.

Here’s what you need to know.

How to help consumers

The Financial Conduct Authority (FCA) has told credit card firms to review their approach to borrowers who are trapped in a cycle of debt.

The new rules apply to those who are paying more in interest, fees and charges than they are paying off their balance.

The FCA outlines a number of areas that firms need to review, including:

The treatment of PD36 consumers (those who have been in Persistent Debt for 36 months)The way that firms communicate with these consumers - for example, the FCA is concerned that some customers may not respond to letters from firms about their debt. In this scenario, the firm must try and speak directly to these consumersHow PD36 consumers repay their debt - the FCA stated that they were “concerned” that firms were proposing repayment options which are not realistic for customersCard suspensions - the FCA stated that they were concerned that some firms may be planning a “blanket suspension of credit cards for all their PD36 customers”. The FCA says that, in line with section 98A of the Consumer Credit Act 1974, firms must have objectively justified reasons for cancelling or suspending a credit card for a PD36 customer

In a letter to credit card CEOs from the Director of Retail Lending and Claims Management Supervision, Philip Salter said: “As part of our review we are evaluating the approach taken by some firms in following our rules on persistent debt.

“Where we identify poor practice, we will take swift action to ensure customers are being treated fairly and our rules are being followed.”

FCA statement

Executive Director of Supervision for Retail and Authorisations at the FCA, Jonathan Davidson, 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, potentially including reducing, waiving or cancelling any interest, fees or charges.”

Davidson goes on to say that consumers shouldn’t just “bury your head in the sand”.

“If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them. If we find firms are not offering their customers the appropriate level of help, we will not hesitate to take action,” Davidson said.

How to get help

If you’re worried about persistent credit card debt, or multiple credit card debt, you can get information about free debt advice from Money Advice Service.

The Money Advice Service states that a debt advisor:

Will never judge you or make you feel bad about the situation you’re inAlways be happy to talk to you about your problemsWill find ways to help you manage your debt, even if you think there’s no way to helpWill suggest ways to deal with debt you may not have considered before