Posted: 24th May 2017

First published by The Building Societies Association in May 2017

There are over 30 million card holders in the UK Credit card consumers owe £61.2 billion, 2 million consumers have persistent high levels of debt and 1.6 million make systematic minimum repayments.

These findings emerged from the FCA’s initial Credit Card Market Study in July 2016 – persistent debt clearly remains a cause for concern for the regulator.

The 3rd April 2017 saw the release of CP17 / 10 on persistent debt and earlier intervention remedies. The paper sets out new proposals and guidance on:

  • Addressing persistent debt over an 18 to 36 month period and beyond
  • Assessing whether customers are at risk of developing financial difficulties and require early intervention
  • An industry voluntary agreement to give customers more control over credit limit increases. The industry has committed to implementing the full credit limit increases remedy within 12 months across the largest firms, representing circa 85-90% of accounts. This will rise to 100% within the next 15 months

For building societies that will need to embed these changes, now is the time to consider the implications. Here is what we believe the key impacts will be and what firms should be considering:

  • Firms should review their existing criteria for assessing a consumer’s affordability status for a credit card. Are there any early warning signs of a potential risk of financial difficulty that may arise in the near future?
  • Consumers will now need to be informed of new terms and conditions when taking out a credit card. For example, the ability to opt in and out of credit limit increases, circumstances where card suspension may occur and forbearance options for falling into arrears. Firms may need to train front line and back office staff in how to communicate amended terms and conditions to new and existing customers
  • Firms need to ensure the right systems are in place to assess whether consumers are at risk of developing financial difficulties. This may bring into question how firms define what a financially difficult scenario looks like and then consider what approach can be used to recognise this. As mentioned by the FCA, this may involve using data available or monitoring a customer’s repayment record
  • Firms need to decide on the best intervention methods to use and whether they are appropriate for vulnerable customers
  • If persistent debt continues after 18 months, firms may need to help consumers to pay by proposing repayment plan options. What will these options look like? Can current forbearance options be used and, if so, what would be best suited to the consumer?
  • Firms will need to review their policies and procedures to ensure that they are in line with industry expectations
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