Last week, the FCA published their Credit Card Market Final Findings and announced the introduction of measures designed to protect consumers.
The publication highlighted two particular concerns. First, that a significant number of people in the UK carry potentially problematic debt for a number of years – they found that 650,000 people had been in persistent debt for three years or longer – and secondly, that an additional 750,000 people had only been making minimum repayments for that time.
Back in November 2015, the FCA reported on the scale of persistent credit card debt. They found two million consumers were carrying persistent debt on their credit card, and another 1.6 million repeatedly making minimum repayments. They identified 5.1 million credit card accounts that would take more than ten years to clear their balance.
The FCA proposed a package of remedies to help users take control of their credit card debt and have secured agreement from lenders.
Credit card providers have agreed to send consumers an SMS or email notification, two to three weeks before the end of their promotional offer, to prompt them to shop around for a new promotional offer or a card with a lower interest rate.
Card issuers have also committed to sending a message to all consumers that exceed 80-95% of their available credit limit; they will let them know that they are close to their credit limit and remind them of charges for exceeding that limit. This will also include a reminder that they could be charged for exceeding their credit limit.
We welcome the FCA call for end-of-offer alerts on 0% credit card deals, it’s a fairer way to treat the consumer. With balance transfer deals running for more than three years and the best purchase offers topping two years, it’s easy to understand how consumers lose track. If you do take out a balance transfer card, we urge you to add a reminder to your calendar to check your eligibility for a new 0% deal if you don’t think you’ll have cleared the balance in time.
Less than 5% of consumers check each year to see if they could get a better credit card deal. We want credit deal comparison and switching to save to be as common for credit as it is for car insurance or energy supplier. And right now, anyone who checks their eligibility for a balance transfer card on TotallyMoney.com has the chance to win £2,276 in our Switch to Save prize draw.
We also back any move that encourages people to pay off their balance with a monthly fixed amount direct debit rather than the flexible and confusing minimum repayment set by the lender.
There is a lot of misunderstanding around minimum repayments. We found that only 1% of UK adults knew how long it would take to pay off a credit card balance of £2,000 if they only made the minimum repayment. Our research found that 65% thought they’d be debt free in 17 years, but that’s less than half the time it would take to pay off the balance.
Take a look at this simple minimum repayment calculator to see just how much you could be saving by increasing your monthly repayments.