Credit card companies are not doing enough to help customers in problem debt, according to the Financial Conduct Authority (FCA).

The City watchdog yesterday published the final findings of its study of the credit card market.

It found that 650,000 had been in persistent credit card debt for three years or more. A further 750,000 had made only the minimum repayments during that time.

The FCA said it is also concerned that consumers getting a credit card for the first time are able to make a “rapid descent” into debt difficulties.

Too many people are paying over the odds for their credit card debts

Gillian Guy, chief executive, Citizens Advice
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It said there is not enough incentive for firms to help customers out of persistent credit card debt because those customers are profitable.

The FCA's proposed changes should make it easier for consumers to budget more efficiently. Image by Cheryl Savan/Shutterstock.com

The FCA has made a number of proposals designed to make it easier for consumers to shop around more effectively, budget more efficiently and repay debt faster. 

These include alerting customers that they are nearing the end of a promotional period and helping them avoid penalty charges. 

Firms will also be required to identify early signs of debt problems and to intervene accordingly. 

The FCA said it is exploring the idea of removing stated minimum payments – instead encouraging consumers to choose their repayment amount on the basis of how soon they want to pay off their debt. 

Christopher Woolard, director of strategy and competition at the FCA, said: “Our final findings show that the sector is working fairly well for most consumers, with firms competing strongly for custom, and the market offering a range of products to meet consumers’ needs. 

“However, we remain concerned about persistent and potentially problematic credit card debt.” 

'Cycles of debt'

Citizens Advice chief executive Gillian Guy said: “Too many people are paying over the odds for their credit card debts.

“Paying off the minimum amount on credit card bills each month means people are stuck in cycles of debt for much longer – while interest charges rack up.

“The FCA’s report rightly highlights that banks could do more to help customers repay their debts more quickly where possible.

”In the last year local Citizens Advice helped people with over 140,000 credit card debt issues. If you are struggling with your finances, it is important to get free debt and money advice as soon as possible to find a way forward and avoid spiralling debts.”

Peter Dutton, head of policy at StepChange, said more than 115,000 people had approached the charity for help with credit card debt this year.

“We welcome the FCA’s intention to act on unsolicited credit card limit increases to give greater control to borrowers,” he said.

“Our research has shown people’s debt problems can get much worse when they are given credit they didn’t ask for or even decide they needed.”

Caroline Rookes, chief executive of the Money Advice Service, said credit card debt is the second most cited reason for people seeking debt advice from the organisation. 

She suggested credit card providers sign up to a standard “breathing space” policy as the industry work towards ways of identifying the early signs of debt problems. 

“This would allow them to intervene by offering a more structured payment plan and direct people to resources to help them manage their finances and get their debts under control, such as free debt advice services.”