Credit cards: Concerns over 'persistent' debt
Borrowers with "persistent debt" but who manage to make minimum repayments are receiving little help from credit card firms, a regulator has warned.
The Financial Conduct Authority said these customers were profitable for card providers and so there were few incentives for the firms to intervene.
It said customers should be encouraged to pay off more of their debt when they could.
The FCA inquiry has analysed the five-year history of 34 million cardholders.
The City watchdog also interviewed 40,000 people about their credit card use. Its interim findings include:
- About two million people - 6.9% of cardholders - are in arrears or have defaulted on credit card debt
- Another two million may be struggling to repay
- A further 1.6 million are repeatedly making only the minimum repayments on their debts
The watchdog said while there was strong competition for some customers and products, other customers were not being targeted.
Providers were quick to intervene when customers missed payments as they were "extremely unprofitable", but the same was not true of those just getting by.
Joanna Elson, chief executive of the Money Advice Trust, which runs National Debtline, said: "The FCA is absolutely right to be concerned about the 1.6 million people who are just about surviving by making minimum payments, often on multiple credit cards.
"As the report highlights, credit card companies usually intervene effectively to help customers who begin to miss payments, and many work closely with debt advice charities to make sure customers get the free advice they need.
"A more consistent similar approach to customers who are routinely making minimum payments would be enormously beneficial."
The watchdog wants feedback from its report and will publish its final report in spring next year.
Christopher Woolard, director of strategy at the FCA, said: "This is a really important market in the UK. Around 60% of adults have at least one credit card, and there is an estimated £61bn in outstanding balances.
"Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better."
The UK Cards Association, which represents the major credit card providers, said the industry had a "long standing commitment to responsible lending".
"The FCA has found the great majority of the 30 million credit card holders in the UK use their cards for payments and borrowing in a manageable way and value the flexibility and convenience of credit cards," said Richard Koch, head of policy at the association.