UK Finance raises awareness on persistent credit card debt

Out-Law News | 06 Mar 2020 | 1:33 pm | 1 min. read

A prominent trade body in the financial services sector has called on consumers in persistent credit card debt to engage with their card providers so as to address the issue and avoid their cards being suspended.

Credit card providers are under a regulatory duty to intervene at set date milestones in an effort to encourage customers in persistent debt to address the issue. For the first wave of customers impacted by the rules, one of those milestones has now been triggered, requiring card providers to contact customers affected again.

UK Finance has published a set of 'frequently asked questions' to raise awareness of the purpose of the providers' communications. It said approximately 950,000 customers are likely to have already been contacted by their provider or should expect to be contacted this month.

Financial Conduct Authority (FCA) rules on persistent credit card debt took effect on 1 March 2018, though firms were given until 1 September 2018 to become compliant. The first wave of customers still affected by persistent credit card debt under the new rules are about to, reach the 36 month stage, which triggers a requirement for credit card providers to contact them again.

The rules for the 36 month communications require credit card providers to encourage impacted customers to pay off their debt faster. The providers must show "forbearance", such as by reducing, waiving or cancelling any interest or charges, in cases where customers are unable to do so. The FCA has also said it expects providers to suspend customers' cards in cases of forbearance or where customers do not respond.

Andrew Barber, an expert in financial services regulation at Pinsent Masons, the law firm behind Out-Law, said: "UK Finance’s publication of a set of FAQs on persistent credit card debt will certainly be welcomed by firms as there has been industry concern about how customers would respond to the first wave of letters regarding their persistent debt. Increased customer understanding will undoubtedly reduce the enquiries made to firms following the sending of letters. More importantly it may help borrowers with persistent debt change their behaviour and start to reduce the amount of their debt outstanding."

Jackie Barodekar, director, cards and consumer credit at UK Finance, said: "Credit card providers want to help. If customers aren’t sure what they should do, or if they think that what is being asked of them is unmanageable, they should speak to their card provider, or to an independent debt advice body for advice. Ultimately a card provider will be required to suspend their customer’s card if they haven’t been in touch. By discussing their circumstances card issuers can consider more flexible arrangements, such as forbearance through an interest rate reduction, if this is the best option."