Financial Conduct Authority to study fairness and transparency of £150bn-a-year market affecting 30m UK cardholders. More than 30m people in the UK have credit cards.
The City regulator is to investigate whether credit cards are being
marketed too aggressively, amid concerns that plastic payment is
allowing consumers to run up debts they cannot afford.
At £150bn a year, the UK credit card market is the largest in Europe,
with 30 million people holding cards with total debts of £60bn.
The Financial Conduct Authority (FCA) said it would launch an investigation into the market when it took over regulation of the sector in April.
On Tuesday it revealed the full scope of its inquiry. It will look at
the complexity of credit cards, the fairness and transparency of their
terms and conditions, and whether consumers can easily switch between
different credit card providers.
The regulator will also inquire into whether the cards are marketed
“in a way that works against the best interests of consumers”.
In April, its research showed that many consumers tried to resist the
lure of credit cards “but were eventually worn down by continual
marketing”, especially when companies sent them targeted mailing shots
pre-approving them for cards.
The market study will look at all issues around unaffordable lending
and whether consumers are borrowing too much on their cards and making
repayments too slowly.
The FCA has previously flagged up its concern that consumers may be getting “payday loans with plastic” in the form of cards with low credit limits and high interest rates.
“The credit card market is well-established and hugely important for
UK consumers, who hold around 70% of all credit cards in Europe,” said
Christopher Woolard, FCA director of policy, risk and research. “We want
to make sure that the market works well for all consumers and that
card-holders get a fair deal.”
The FCA will officially begin the in-depth market study in January with the results expected to be published at the end of 2015.
Mike O’Connor, chief executive of the Step Change debt charity,
welcomed the announcement. “Too many people are using credit as a safety
net when all too often it is a trap which leads to problem debt. Credit
card debt is one of the most common debt problems we see. Many people
are struggling with multiple debts, high balances and interest rates.”
Around half a million people contact Step Change each year for advice
about their debts. On average, they have £9,047 of credit card debt and
10% have five or more credit cards. “People will always need to borrow
to cope with the up and downs of income and the costs they face, but we
need to ensure that the credit market is operating in the best interests
of consumers and with good levels of protection, especially for
vulnerable people,” said O’Connor.
The UK Cards Association, which represents the industry, said it
would study the FCA’s observations carefully. “The industry has a
long-standing commitment to responsible lending and transparency and
over the last five years has introduced many changes including on credit
limits and re-pricing of debt, improved transparency, and forbearance
for those who find themselves missing repayments,” said Richard Koch,
head of policy at the trade body.
