The FCA has launched a consultation on persistent credit card debt and earlier intervention remedies. All firms providing credit card facilities to consumers, as well as other interested parties, have been invited to respond with their views by the deadline of 3 July 2017.
The FCA’s definition of persistent debt is an account where:
• over a period of 18 months, • payments of interest, fees and charges exceed repayment of principal; and • the outstanding account balance is continually above £200.
(noting that this has been revised from the definition suggested by the FCA in its market study, published last year, which initially suggested a definition based on 12 months’ usage). It is estimated that the proposed definition would capture 4 million accounts and 3.3 million customers.
Proposed early intervention remedies
In order to move the market forward on what can be a significant issue for some consumers, the FCA is proposing that firms who provide credit card facilities be proactive in identifying relevant customers and assisting them in the resolution of this issue.
The early intervention remedies, and timeline, suggested by the FCA are:
Phase I: intervention at 18 months
The firm would advise customers meeting the definition of persistent debt that increasing their current rate of repayment would reduce their cost of borrowing and the time taken to repay. The firm would also advise that continuing low repayments for a further 18 months may mean that the firm suspends use of the card and makes a report to a credit reference agency.
At 27-28 months:
If a customer’s repayments up to this point indicate they are likely to remain in persistent debt at the 36 month point, the firm would require to repeat step 1.
Phase II: intervention at 36 months
Where a customer is still in persistent debt after a further 18 months, and has repaid more in interest and charges than principal for two consecutive 18 month periods, the firm would require to take steps to help the customer repay the outstanding balance(s) more quickly.
The firm would:
(1) write to the customer proposing options for repayment plans based on repaying their debt over a reasonable period (“reasonable” is suggested as being between three and four years); and (2) suspended all further use of the relevant credit card(s), unless the customer engage with the firm
If the customer is unable to afford any of the suggested repayment plans, the firm would, in addition to suspending all further use of the relevant credit card(s), then require to exercise forbearance. The FCA has suggested that forbearance in this context could include a reduction in the interest rate being charged, or waiving or cancelling any interest and charges.
The suggestion is that these interventions would continue until the customer has repaid the full outstanding balance. It is also suggested that, rather than impose the regime on credit card providers, firms would be asked to subscribe to an industry voluntary arrangement under which they would agree to act in accordance with the early intervention remedies.
The FCA’s proposals have generated a good deal of press interest already, generally being billed as both progressive and necessary. The UK Cards Association gave the proposals an early welcome, and are now engaging further with the FCA on them.
The consultation is open for responses until 3 July 2017. The consultation paper and details of how to respond can be found here.