Consumers are set to save up to £1.3bn a year in lower interest charges as the financial regulator’s set out new rules to protect those in persistent debt as credit card firms will need to contact customers who’ve been in persistent debt – where interest and charges are more than the starting balance – for over 18 months.
The firms will be required to prompt customers to change their repayments and let them know that their card may be suspended if they don’t change their repayment pattern.
Once someone’s been in persistent debt for 36 months, the provider will need to offer a way to repay the balance in a reasonable period. But if customers can’t pay, the firm must show “forbearance”, the Financial Conduct Authority (FCA) said. This may include reducing, waiving or cancelling any interest, fees or charges.While the rules come into force on 1 March 2018, firms have until 1 September 2018 to comply.
The move comes following an FCA study of the credit card market. It analysed 34 million credit card accounts over a five-year period, surveying 40,000 users.It found that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing.
There are around four million accounts in persistent debt and firms have few incentives to help these customers because they are profitable.
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