Financial News

  • 4 April 2014, 12:16

Credit Card Market Faces Regulator Probe

The City regulator is to undertake a review of the UK's £150bn annual credit card market, with concerns including poor controls on soaring consumer debt levels.

While there is no pre-determined scope for the review, the Financial Conduct Authority's (FCA) chief executive Martin Wheatley confirmed it would begin later this year, with preliminary discussions starting soon.

Mr Wheatley told a credit summit in London he feared some vulnerable consumers were being offered what were akin to "payday loans with plastic".

The FCA said that while 30 million people have at least one credit card, recent research showed almost one-in-three borrowers were considered to be in serious debt.

The watchdog was particularly concerned, Mr Wheatley argued, about a considerable number of 'survival borrowers' - those who often feel they have no option but to borrow money through a payday loan or using a credit card, to help pay their bills.

He said: "The key priority here has to be those in the most vulnerable circumstances, many of whom are struggling to manage their credit card commitments, as well as other bills.

"Among the UK's 30 million-plus cardholders, something like 3.7% make minimum payments for 12 months which is the equivalent to more than a million borrowers making 12 or more consecutive minimum payments.

"So, we know it's not uncommon for the most 'at risk' households to hold multiple cards and revolve multiple balances month-by-month.

"There are some obvious questions and challenges here for regulators and industry: why are card issuers providing the means, in some cases, for the most indebted consumers to escalate their way into further debt?

"As part of this review, or market study as we call it, we will be engaging with the industry ahead of time and it's important to say there's no pre-determined terms of reference, outcome or agenda here."

Other questions to be considered include whether consumers who leave their balances every month are subsidising those who pay them off and whether there is sufficient competition in the sector to ensure value for card holders.

According to debt charity StepChange, around 10% of people who visit it for advice and who have an average total debt of £27,000 have five or more credit cards.

The review could potentially recommend new rules to better protect consumers, begin enforcement action against any individual firm found not to be following existing regulations and refer the sector to the new Competition and Markets Authority for a full competition inquiry.

The consumer group Which? welcomed the review.

Its executive director Richard Lloyd said: "Too many credit cards appear to be designed to catch customers out.

"The FCA should investigate how lenders can help put consumers in control by providing clearer information, stopping excessive penalties and encouraging people to shop around without it damaging their credit record."