City watchdog warn banks not to ‘blanket’ cancel indebted customers’ credit cards without good reason amid concerns they will under new rules
- Banks have to implement new regulatory rules on ‘persistent debt’
- These are people who have paid more in interest than off their balance
- Banks have told customers they could have their cards cancelled if it pushes them further into debt, which the FCA has today warned against
The Financial Conduct Authority has today warned banks against cancelling indebted customers’ credit cards without good reason, amid concerns they could preparing to do so from the end of this month.
Banks have to implement new regulatory rules – introduced in September 2018 -designed to better help those in ‘persistent debt,’ by the end of February.
These are credit card holders who have paid more in interest, fees and charges than their balance over an 18 month period.
This is Money revealed two weeks ago that credit card customers of Lloyds and Halifax could potentially have their cards cancelled, among other measures proposed by Britain’s biggest current account provider.
Credit card customers in persistent debt have been warned their cards could potentially be cancelled if they ignore warnings to up their repayments
Customers of NatWest and RBS in persistent debt could also have their cards cancelled from the end of February.
While under the rules customers must be sent at least three letters telling them to up their credit card payments before their accounts could be cancelled, the FCA today warned against banks doing so without ‘objective justification’
It is likely this is in response to letters being sent out by some of Britain’s biggest banks.
In a letter sent to senior bankers, the regulator wrote: ‘We are concerned that some firms may be planning a “blanket” suspension of credit cards for all their customers in persistent debt.
‘The rules only require the suspension or cancellation of cards where a customer does not respond to the repayment options proposed within the time specified by the firm, or confirms that one or more of the proposed options are affordable but that they will not make increased payments.
‘We remind firms that, in line with section 98A of the Consumer Credit Act 1974, when they choose to suspend or cancel a customer’s access to credit they must serve customers with a notice giving reasons for this, and those reasons must be objectively justified.
‘There is no regulatory requirement that a card must be suspended where a customer is in persistent debt, so an objective justification could not rely on such a requirement.’
Other measures revealed by This is Money which are designed to help those stuck in red include detaching interest rates from the Bank of England base rate, and advising people to up their repayments to clear their balance quicker.
Britain’s credit card debt pile inched up £400million last December to £72.5billion, reversing a £120million fall in November.
November had marked the first month when consumers paid back more than they borrowed since July 2013.
Peter Tutton, head of policy at StepChange debt charity, said: ‘It is helpful to see the FCA reminding firms of their responsibilities under the new rules.
The FCA is unequivocal that firms should not cancel people’s cards wholesale.
Peter Tutton – StepChange
‘The FCA is unequivocal that firms should not cancel people’s cards wholesale.’
He adds: ‘We particularly welcome the regulator telling firms to include in their letters a reminder that forbearance is available if people cannot afford what is suggested, and that they should signpost to independent advice, especially for those receiving letters from more than one card provider.’
Trade body UK Finance told This is Money: ‘The FCA’s new persistent debt rules are designed to help customers to reduce the cost of their borrowing by encouraging them to pay back their credit card balance quicker, where they can afford to do so.
‘Where customers have been in this position for 36 months, card providers will set out options to help them to repay their outstanding balance more quickly, usually within three to four years.
‘If a customer receives a letter from their card provider it is important that they do not ignore it and instead make sure they contact their card provider as soon as possible to discuss their repayment options.
‘If they remain unsure or if they think that what is being asked for is unmanageable then we would encourage them to speak to their credit card provider or an independent debt charity to talk through the options and agree a way forward that does not adversely affect their financial situation.’
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS