FCA has published the interim findings from its market study on the credit card sector. FCA finds that, in most of the market, competition is working fairly well for consumers but is concerned about the scale of potentially problematic debt for consumers who are just above default levels, and the incentives for firms to manage this. Interim findings show:
- firms compete strongly for custom on some features, offer a range of products to meet consumers’ needs and there have been new entrants in the market in recent years, but there is less choice than there used to be for high risk consumers;
- consumers shop around, switch and value the flexibility offered by credit cards. But competition focuses on a few factors only, including attractive promotional offers, and consumers do not always take account of other important features when taking out a product or switching;
- firms were not targeting particular groups of consumers to cross-subsidise other groups;
- consumers in default are extremely unprofitable and firms are active in contacting consumers who miss payments, triggering forbearance at this point. However, consumers with persistent levels of debt or who make minimum payments are profitable. Firms therefore have fewer incentives to help these customers. A few firms also charge default fees several times per default;
- 0% balance transfer options are a significant feature of the market. FCA is worried about whether consumers really understand the product and the fees they will incur, and whether use of these products store up future debt problems; and
- price comparison websites are popular but there are limitations in comparing the complexity of products, and generally there is little information on how they are funded and whether they compare the whole of the market.
FCA has proposed potential remedies to make the market work better for consumers. Key remedies include:
- measures to help consumers find the best deal include enabling better access by consumers to their transaction data and clearer standards for comparison sites;
- ensuring consumers can search the market without damaging their credit score, and prompting consumers to consider their position when they are nearing the end of a promotional period;
- measures to give consumers more control over credit limits and utilisation;
- measures to encourage consumers to pay off debt quicker when they can afford to, such as disclosures on how much it will cost to pay off debt and a wider range of pre-set repayment options; and
- requiring firms do more to identify earlier those consumers who may be over-borrowing or struggling to repay and take action to help them manage their repayments.