Thousands of credit card customers are at risk of having their accounts suspended in the new year due to the City regulator’s new affordability rules.
Credit card providers – including UK banks such as Barclays, Lloyds and Royal Bank of Scotland – were last year forced to identify customers who had been in persistent debt for at least 18 months, and have had a further 18 months to convince customers to increase their payments.
Customers who fail to respond or cannot afford hiked payments risk having their credit cards suspended as early as February 2020 – as the first 36-month period draws to a close.
The Financial Conduct Authority’s regulations are targeted at customers in persistent debt for at least 36 months, who end up paying more in interest fees and charges than the original amount they borrowed. Most have made a long-term habit of only making minimum payments each month, which often masks underlying financial troubles.
About 60% of the UK’s adult population – about 30 million people – have credit cards. The FCA has estimated that about 5.6m credit card accounts may be held by customers who are struggling financially, and that nearly 2 million may fail to raise their payments before the 36-month period is up.
It is difficult to predict how many customers may end up having their credit cards suspended as a result, but it is understood that banks are still contacting thousands of customers as the first 36-month period comes to an end. An account suspension could affect a user’s credit scores.
Credit card companies have been ordered to send at least three letters to customers, warning them to raise their payments or risk having their credit card suspended. Firms have been offering alternative ways of repaying their debts more quickly, usually over a period of three to four years. That could include transferring a credit card balance to a personal loan with lower interest.
The rules are expected to cut into revenues for credit card companies, but the FCA said it will save customers up to £1.3bn per year. “Furthermore, consumer stress and related financial difficulties would be reduced by resolving debt problems sooner. The total cost savings were expected to have reached between £3bn and £13bn by 2030,” the watchdog said in its original policy paper.
Barclaycard said it had sent monthly letters since September 2018, offering customers personalised four-year pay-down plans. It said it would reach out to the remaining customers for a final time in February 2020 before taking action later that month.
“Barclaycard is a responsible lender, committed to helping customers manage their borrowing effectively,” a spokesman said. “As a result, we have been writing to customers in persistent debt to let them know what actions they need to take to get themselves out of persistent debt over the coming months.”
But if customers are unlikely to keep up with payments for those alternative plans, firms will have to show “forbearance,” which could include reducing, waiving or cancelling any interest or charges. “We would expect firms to suspend the cards of customers that have been shown forbearance, and those who do not respond,” the FCA policy document explained.
RBS sent its first batch of letters to customers in May 2018, but is understood to have started the 18-month clock in September that year. It means Natwest and RBS customers could also have credit cards suspended by February next year.
TSB said it could increase customers’ minimum payments if it reasonably believed customers were in a position to keep up with the added costs. However, it still has the power to stop customers from using their cards altogether.
A spokeswoman for the industry lobby group UK Finance said: “In some circumstances, where a suitable repayment option is not agreed, and in accordance with the new rules, cards might be suspended, so it is really important that customers do not ignore letters received – they should read them carefully to understand their options and contact their credit card provider at the earliest opportunity.”
