Credit card lenders must now provide more help to borrowers who are struggling to clear their debts.
Under new rules, credit card providers are required to take a series of escalating steps to help borrowers who are making low repayments over a long period, starting when the customer has been in persistent debt for over 18 months. After this time, lenders will have to contact customers and prompt them to change their repayment, as well as informing them that their card may ultimately be suspended if they do not change their repayment pattern.
Once a consumer has been in persistent debt for 36 months, their provider will then have to offer them a way to repay their balance over a reasonable period. If the borrower is still unable to repay, the lender must show the customer 'forbearance'; which may include reducing, waiving or cancelling any interest, fees or charges.
Any providers who do not comply with the new rules could be subject to action by the financial watchdog, the Financial Conduct Authority (FCA).
Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit. Under the measures, customers can opt-out from receiving automatic credit limit increases, while those borrowers who have been in persistent debt for 12 months will also not be offered them.
According to the FCA, customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing. With around four million accounts in persistent debt, and lenders having few incentives to help these customers as they are so profitable to them, the regulator has decided to take action.
It is estimated the changes will save consumers up to £1.3 billion a year in lower interest charges. While the new rules came into force on 1 March, firms had until 1 September 2018 to comply.
"Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time – without making much headway on the outstanding balance," said Christopher Woolard, Executive Director of Strategy and Competition at the FCA. "Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help."
Confident you can stick to a repayment schedule? Check out the top 0% balance transfer credit cards to clear your debt without paying over the odds
If you're the kind of person who likes to pay off their debt monthly, compare the best prepaid credit cards
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.