In CP17/10, the FCA consults on how to tackle persistent credit card debt and how firms should take steps at an earlier stage to help prevent persons falling into persistent debt. The drive of the proposals is to require firms to take steps to help customers repay large, long-standing balances more quickly and to offer further assistance to those who can’t.

Summary of selected rule changes

The Financial Conduct Authority’s credit card market study: consultation on persistent debt and earlier intervention remedies (CP17/10) sets out a range of proposals. Below we discuss those specifically aimed at pressing firms to engage differently with customers in persistent debt.

  • What is persistent debt? A credit card account is in persistent debt if the customer is paying more in interest, fees, and charges than principal repayments and the outstanding balance is not lower than £200 at any point over an 18 month period.
  • When will this be relevant? There are transitional provisions (see CONC TP 7A) meaning firms will have to comply with the rules three months after they come into force. As a rough guide, we would not expect the 3 month implementation date to start until the back end of 2017 at the earliest – with the first 18-month interventions from mid-2018 and 36-month interventions from approximately September 2019.
  • Intervention timetable: the FCA proposes a stepped approach:
    • 18 months of persistent debt: firms must provide information to customers:
      • increasing repayment rates would reduce their cost of borrowing and the time taken to repay (CONC 6.7.27(4) R);
      • continuing low repayments for a further 18 months may mean the firm suspends card use and trigger a report to a credit reference agency (CRA);
      • explaining sources of not-for-profit debt advice; and
      • encouraging customers to contact the firm. The 18 month persistent debt assessment period is rolling once a month (see 6.7.27 (2) R) but 18-month intervention is not required if it has been received in the previous 18-month period.
    • At 27-28 months: “in good time”, the firm must review customers’ repayments and if they are likely to be in persistent debt at the 36 month point, firms should repeat the steps required at 18 months. Firms can issue additional reminders at other times.
    • At 36 months: for customers that have been in persistent debt for two consecutive 18-month periods, firms must contact the customer to:
      • offer various options for repayment plans, based on sustainably repaying their debt over a reasonable period, usually between three and four years (see CONC 6.7.33(2) R);
      • make the customer aware that the firm will usually suspend their card use and submit a CRA report unless they engage with the firm; and
      • again, provide sources of not-for-profit debt advice.
    • Firms must intervene regularly until the customer has repaid the balance they had at 36 months, avoiding a fresh cycle of persistent debt.
  • Customers who do not repay more quickly
    • Customers who cannot pay more quickly: firms must exercise forbearance (see CONC 6.7.37 R), suspend card use; and aim to help the customer to repay the balance quickly and in a reasonable period. It may include reducing, waiving or cancelling any interest or charges, for example.
    • Declining to pay more: if customers can afford to make increased repayments but decline, will usually have their card suspended or cancelled. The firm would make a CRA report; and
    • Not engaging: other than suspending or cancelling the card, the FCA does not prescribe how a firm should approach these customers (see CONC 6.7.35 R, 6.7.38 G and 6.7.39 R).

Firms need to assess whether a cancellation or suspension would cause adverse impact on a customer or if their circumstances justify allowing continued spend – finding the balance in treating customers fairly and observing rules aimed at curbing persistent debt.

  • Not meeting agreed repayment schedules: firms may wish to press for clarity about what to do if this happens in response to the consultation (see Q9 in the CP).

The FCA seeks feedback to CP17/10 by 3 July 2017.