New Credit Card Regulations Will Help The Indebted

1st March 2018.

Credit card customers struggling with persistent debt are to be offered extra help by lenders, under new rules introduced by the Financial Conduct Authority (FCA).

New rules released by the FCA will kick in after a customer has been in ‘persistent debt’ for more than 18 months. Lenders will have to ask customers about changing their repayment plan, warn them their card could be cancelled and in some cases ultimately waive interest, fees and charges. This will be of great relief to not only consumers- who will see their finances looking a little steadier- , but also to retailers, who may see a positive effect on spending and consumer confidence.

In the wake of growing unemployment numbers, falling house prices and high inflation, consumers have been tightening their purse strings. This has led to a relatively soft winter period for retailers, as fewer shoppers head to the high street for non-essentials. At the Credit Protection Association, a large number of our members work within the retail industries and have suffered from the drop in demand. However, as consumers start to repay their debts, the business climate may be all the better for it.

The FCA has defined someone as being in persistent debt if, over a period of 18 months, the amount they pay in interest, fees and charges is more than the amount of debt they repay.

According to the financial watchdog, there are currently four million credit cardholders in persistent debt, and they pay an average of £2.50 in interest and charges for every £1 they borrow. It estimates the new rules will save customers between £310 million and £1.3 billion a year in lower interest charges.

Consumers are slowly becoming more conscientious about their personal finances. We have fewer shop-til-you-droppers and more cautious shoppers who keep to a tight budget. While the drop in credit and borrowing has altered consumer behaviour, once the country’s debt pile is dented, spending habits may start to change. Rather than witnessing die-hard shoppers who can’t pay back their credit, retailers will start to do business with loyal customers who will only buy what they can afford but will treat themselves to what they want.

At the Credit Protection Association, many of our members have had to reshuffle their business due to decreased demand. Many have utilised our debt recovery services to free cash flow, this has led some to invest in digitising their workplace, renovating offices or hiring more staff; all to bring more customers to their door. With these new FCA regulations in place, less financially vulnerable consumers will be spending on credit, and more will instead be spent within the small and medium enterprises across the country.