CP17/10: Consultation on persistent debt and earlier intervention remedies

Show CP17/10 (PDF)

In our credit card market study we found that while the market works well for most consumers, we had significant concerns about the scale and persistence of potentially problematic debt. We set out a proposed package of remedies that sought to address the issues we identified. This Consultation Paper forms part of the implementation of that package of remedies.

In this Consultation Paper we are proposing measures to tackle persistent credit card debt and encourage earlier intervention. This includes a requirement on firms to take an escalating set of steps designed to encourage customers to repay debt more quickly and avoid getting into persistent debt in the first place. Where customers are not able to repay their debt in a reasonable period, firms would be required to offer forbearance.

The proposed rule on early intervention would see credit card firms required to use the data available to them to identify customers at risk of financial difficulties and take appropriate steps. This builds on an existing rule that applies to all lenders, which requires firms to monitor a customer’s repayment record for signs of actual or potential financial difficulty.

We also set out the details of an industry voluntary agreement to give customers more control over credit limit increases. This will see the industry offer new and existing customers greater control over increases to their credit card spending limits.

Who this applies to

• firms that offer credit cards to consumers
• consumers who hold credit cards, specifically those who carry a balance over a long period of time without making significant repayments, and customers at risk of financial difficulties

It will also be of interest to consumer representative organisations and firms who provide debt advice.

What you need to do

This consultation has now closed.

Next steps

Now that the consultation period has closed we are considering feedback we have received. We will publish a substantive update on our proposed Credit Card Market Study remedies before Christmas 2017, and expect to make new rules as early as possible in the New Year. 

Voluntary industry agreement on credit limit increases

In this consultation, we proposed measures to tackle persistent credit card debt and encourage earlier intervention. We also set out the details of a voluntary industry agreement to give customers more control over credit limit increases. This would see the industry:

• offer new and existing customers greater control over increases to their credit card spending limits 
• restrict the circumstances in which customers would be offered credit card limit increases

Since publication, the industry has developed a revised approach to the second component of the agreement (restrictions to credit limit increases). This will mean the industry would exclude customers who meet our proposed definition of persistent debt for 12 months from offers of credit limit increases. This would be instead of the previously published restriction in relation to making minimum repayments.

We consider this revised, more simplified approach is at least as effective as the previous proposal as we expect it to result in approximately 50,000 additional accounts per year not being eligible for offers of credit limit increases. The revised approach would be easier for firms to implement and explain to consumers.

Previous CP17/10 voluntary industry agreement on offers of credit limit increases

After 8 months of making minimum repayments, customers will not receive offers of credit limit increases unless they expressly opt-in. After 14 months of minimum repayment, customers will no longer receive offers of credit limit increases:

• number of accounts affected - approximately 1.35m per year
• implementation timetable - 70-80% of accounts within 6 months,100% of accounts within 12 months

Revised voluntary industry agreement on offers of credit limit increases

Customers meeting our proposed definition of persistent debt for 12 months would not receive offers of credit limit increases:

• number of accounts affected - approximately 1.4m per year
• implementation timetable - 100% of accounts within 12 months of our persistent debt rules being finalised

There are no changes to the voluntary industry agreement giving customers greater control over their credit limits. These are described in Chapter 4 of CP17/10.

We have written to UK Finance agreeing to their revised proposal. We will continue to work with the industry as we look to finalise our rules later this year.