Credit card strugglers could save £13bn in fees
People struggling with credit card debt could see as much as £13bn in fees, thanks to new rules proposed by the financial watchdog today.
The Financial Conduct Authority has found that the 3.3 million with persistent credit card debt are currently paying £2.50 in interest and fees for ever £1 they borrow – and because they reap huge profits for companies, lenders have little incentive to help them get out of debt.
Credit card companies will be forced to help customers who are in debt by prompting them to make faster repayments and cancelling interest and charges if they are still unable to repay.
Persistent credit card debt
For most people, credit cards can offer a flexible and useful way of borrowing money. The explosion of super-long interest-free deals means that you can borrow for as long as three-and-a-half years without paying any fees.
However, millions of people are trapped in credit card debt they cannot get out of. According to the financial watchdog, 2.2 million have been in debt at least three years, just getting by with their debt by making the minimum payments.
According to the Bank of England, families now owe more than £66bn in on credit cards.
How your credit card company will help you
The Financial Conduct Authority has now devised plans to force lenders to do more to help these profitable customers fight their way out of debt.
If you’ve been in debt for 18 months…
Companies will be forced to notify you that increasing your repayments would help you save money in fees. They would also warn you that your card could be suspended and that this would be reported to credit reference agencies.
If you’ve been in debt for three years…
Your credit card company will work with you to come up with a repayment plan, lasting three to four years. If you ignore the firm, it will suspend your credit card. If you can’t afford to make repayments, the companies must scrap interest and charges to help you repay your debt quicker.
The financial watchdog believes that this could save between £3bn and £13bn by 2030, if it leads to a shift in the way that people deal with their debt with companies treating them more fairly.
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