Shearman & Sterling LLP | FinReg | UK Regulator Consults on Persistent Debt and Earlier Intervention Remedies as Part of Credit Card Market Study
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  • UK Regulator Consults on Persistent Debt and Earlier Intervention Remedies as Part of Credit Card Market Study

    The Financial Conduct Authority has published a consultation paper on persistent credit card debt and earlier intervention remedies. The remedies and interventions outlined in the consultation paper form part of the overall package of remedies announced by the FCA in July 2016 in its credit card market study final findings report. The FCA then concluded that competition was working fairly well for the 30 million consumers who hold a credit card. However, the FCA expressed significant concerns regarding the scale, extent and the nature of persistent credit card debt and the limited incentives provided by firms to reduce this.

    The FCA sets out proposals for rules and guidance to address persistent credit card debt, requiring firms to assess whether customers are at risk of developing financial difficulties and then to intervene appropriately. The intention of the proposals is to rebalance incentives so that both firms and customers are encouraged to avoid credit card debt becoming persistent, and to provide help more quickly to customers who cannot afford to repay debt.

    The FCA proposes to build on an existing rule that firms are required to monitor a customer's repayment record for signs of actual or potential financial difficulties. The FCA notes that credit card firms have access to more data than just the customer's repayment record (such as spending patterns, changing repayment behavior and county court judgments data). Firms should utilize this data to assess whether customers are at risk of potential financial difficulties, take appropriate action and implement a policy for dealing with such customers, even though they may not have missed a payment yet.

    The FCA also outlines a way forward with regard to control over credit limit increases. The FCA describes voluntary remedies which, if adopted, would assist customers in gaining greater control over their credit limit. New customers will be given the choice as to how their credit limit increase will be applied to their account. Existing customers will be provided with a more straightforward means of declining a credit limit increase offer, with a choice to have future offers made on an opt-in basis.

    Responses to the consultation are due by July 3, 2017, with the FCA to publish rules in a Policy Statement following completion of the consultation.

    View the consultation paper.

    View the press release.