Out-Law News 2 min. read

Credit card market study to be undertaken by UK City regulator

The Financial Conduct Authority (FCA) is to open a study into the UK's credit card market amidst its concerns about the way it is working.

The regulator said that it has concerns about whether competition in the market is "working in the best interests of consumers" and whether consumers are choosing the right credit card for them. It said it had concerns about consumer awareness of interest payments on the credit card balances and their management of credit card debt and also said there were indications that some credit card providers might be profiting more from "higher risk borrowers".

The FCA has set out its terms of reference for its credit card market study (32-page / 596KB PDF) and given stakeholders until 5 January to send it comments. It said it was looking in particular for feedback and evidence on whether its concerns are "not well-founded".

"Based on our current understanding of how the credit card market works, we have identified three main areas we would like to explore as part of the market study," the FCA said. "[Those areas are:] the extent to which consumers drive effective competition through shopping around and switching; how firms recover their costs across different cardholder groups and the impact of this on the market; [and] the extent of unaffordable credit card debt; in particular whether some consumers are over-borrowing or under-repaying on their balances and whether firms have incentives to provide unaffordable lending that leads to consumer detriment."

The FCA said its study would "focus on the use of credit cards as a form of revolving credit" and give less attention to issues relating to "both the borrowing and payment function of credit cards". It said it would take into account issues to do with interchange fees and the effect other payment mechanisms such as debit cards and online and mobile payments have, among other things, but "only to the extent that they are relevant to the assessment of whether the credit card market is working well for consumers".

Christopher Woolard, director of policy, risk and research at the FCA said: "We want to understand in more depth what drives consumers to make the choices they do and how firms develop the services they offer. We want to make sure that the market works well for all consumers and that card-holders get a fair deal."

Competition law expert Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, said: "We are seeing consistent themes from the FCA and CMA with respect to scrutiny of levels of customer awareness, engagement and understanding. While the main perspective here is on the FCA’s regulatory remit for consumer credit, this is also an area the Competition and Markets Authority is exploring more generally in its UK retail banking market review."

The UK Cards Association estimates that more than 70% of all the credit cards issued in Europe are issued in the UK and that there is currently approximately £56.9bn in outstanding debt in UK consumers' credit card balances.

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