Tackling your debts

Can the FCA get the interest and charges on your credit card written off or frozen?

Posted 18 April 2017

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The FCA thinks too many people are in persistent credit card debt and they’ve proposed new ways for credit card companies to help their customers.

The Financial Conduct Authority (FCA) has said that credit card companies must do more to help the people who have persistent credit card debt they’re struggling to clear. This could mean that credit card companies may have to freeze interest and charges for some of their customers. They may also have to work more closely with people unable to pay their debts back in order to come up with affordable repayment plans.

The definition of someone who is in persistent credit card debt is someone who has paid more in interest and charges than they have in repaying the sum they borrowed, over an 18 month period.

The FCA is proposing that lenders prompt customers to make faster payments, if they’ve only been paying the minimum amount for 18 months. If the issue persists for three years, then the FCA wants firms to propose a new repayment plan, and if their customers can’t afford it, they should look at whether they can reduce, waive or cancel interest and charges.

As it stands, someone who borrows £3,000 on a card with an APR of 19% and only makes the minimum repayments (and doesn’t borrow any more on the card) would be paying back the debt for the next 27 years – and the interest would amount to more than they originally borrowed. 

This will all come as good news to those that have been struggling with unmanageable credit card debt for a while, but at this stage they are only proposals. If you’re struggling with credit card debt at the moment, then you need an immediate plan to address the issue.


What should you do if you're in persistent credit card debt?

Have a look at your budget and see whether there are any changes you can make that would free up some more money to put towards your monthly payments, so you’re paying more than just the minimum. If we look at the example above and imagine that the borrower fixed their repayments at £74 per month – instead of just making the minimum payment – the debt would be paid off in just over five years. As you can see this is a huge difference in the repayment term.

If you’re struggling to make even the minimum payment, you should get in touch with your lenders and see what they can do to help you, you don’t have to wait for the rules to change or for them to contact you. Lenders sometimes agree to give you a payment holiday or to freeze interest and charges if they can see you’re genuinely struggling.

by Christine Walsh

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