The Financial Conduct Authority (FCA) warns that 5 million credit cards may never be paid off and wants consumers to have more control of their payments.
In a July 2016 report the FCA called for a shake-up of the market revealing 5.1 million accounts (approximately 8.9 per cent of credit cards active in January 2015) would take more than ten years to pay off their balance. These fit into a pattern of cards that it later identified where ‘the full balance was almost never repaid’.
It also highlighted how 1.4million borrowers have only made the minimum repayments on their credit cards for three years in a row. Borrowers who only meet the minimum repayments required by their cards are sat on debts that they continue to pay interest on for years.
Since April 2011, minimum monthly payments must be at least 1 per cent of the balance plus that month’s interest and any charges. So for someone with a £2,000 outstanding credit card debt and a 17 per cent interest rate making a £30 minimum monthly payment, it would take 17 years – or 206 months – to clear their debt.
The FCA said in its recommendations it wants cardholders to be given timely prompts such as texts or emails weeks before any promotional rates such as zero per cent balance transfers end. Borrowers should also be fed tailored information on how much they are borrowing before any charges are imposed.
They also want credit card providers to encourage minimum payers to up their monthly payments to help clear the debt quicker. Capital One recently trialed this and found that there was a 12% uptake, with customer raising their payments by 73%.
The FCA confirmed that last year the number of cardholders across the UK increased to 31.8million and total outstanding balances are estimated to have increased from around £61billion in December 2014 to approximately £63billion in December 2015.