In early November 2015, the financial regulator, the Financial Conduct Authority (FCA) published an interim report on the credit card industry.
Card providers, along with all other consumer credit firms in the UK, have been regulated by the FCA since April 2014. The FCA is responsible for ensuring authorised firms treat their customers fairly, and also that there is effective competition in the relevant market sectors.
The report suggests competition in the credit card market is working well for many people. But Christopher Woolard, Director of Strategy and Competition at the FCA, suggested that consumers with certain debt problems may not be experiencing the full benefits of a competitive market.
Mr Woolard said:
“This is a really important market in the UK. Around 60 per cent of adults have at least one credit card, and there is an estimated £61 billion in outstanding balances. Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.”
Customers who default on their repayments are not profitable to card providers, but conversely those who experience difficulties but do not default (such as those regularly making minimum payments) are extremely profitable. The concern therefore is that firms have no incentive to assist these profitable customers.
Around 2.1 million cardholders (about 6.9% of the total number of credit card customers in the UK) have defaulted, but around the same number are said to be “persistently” in debt, and around 1.6 million (5.2%) are said to be regularly making minimum repayments only. This means that there could be as many as 3.7 million customers for whom the card providers have little incentive to assist.
The FCA also believes that firms should provide better information for customers who are trying to compare different providers.
The FCA gathered its information by analysing the payment records of some 34 million credit card customers, and by surveying 40,000 card users.
The FCA has proposed the following remedies to improve the way the credit card market functions:
- Making it easier for consumers to identify the best deal, including new measures to boost the profile of price comparison sites
- Forcing firms to provide consumers with methods of searching the market that do not involve damaging their credit rating
- New rules that will require firms to alert customers to the fact their promotional interest rate period is about to end
- Requirements for firms to encourage customers to pay down their debt if they can afford to do so
- Requirements for firms to identify at an early stage customers who are struggling to repay their debt, and to assist them in managing their debt
Comments on the FCA’s proposals can be made to firstname.lastname@example.org until January 8 2016. A final report will then be published in spring 2016.
The card providers’ trade association chose to concentrate on the FCA’s finding that the market was working well for most consumers. “The FCA has found the great majority of the 30 million credit card holders in the UK use their cards for payments and borrowing in a manageable way and value the flexibility and convenience of credit cards,” said Richard Koch, head of policy at the UK Cards Association.