Proposed Legislation Could Erase Credit Card Interest in U.K.
In the U.K., the Financial Conduct Authority (FCA) has proposed new legislation that would require credit card companies to cancel interest and charges for individuals with longstanding debt. Companies would also have to work with individuals to help them create faster repayment plans.
The FCA defines those in “perpetual debt” as individuals who have paid more in interest and charges than they have toward their balance in an 18-month period. They estimate 3.3 million people in the U.K. are in this predicament.
The regulator has criticized credit card companies, and said “customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them.”
Specifically, the new proposals would mean:
- Cardholders will have greater control over their credit limit and can refuse credit line increases.
- After 18 months, credit card companies should prompt customers to repay their balance faster, if they can afford it.
- After three years, issuers must create a repayment plan to help the cardholder repay their debt faster.
- If customers still cannot pay their balance faster, issuers should waive, reduce or cancel interest or charges.
- If cardholders fail to respond to the issuer’s request for a payment plan, or if they refuse to make payments when they have the means to do so, they could have their card suspended.
Consumer advocates are applauding these new measures, but think the FCA is still not addressing the fundamental questions about how card companies are trapping individuals in persistent debt.
The FCA believes these measures could help consumers save between £3 billion and £13 billion ($3.74 billion and $16.22 billion) by 2030, as it will help cardholders pay their debt faster.
Card companies and other interested parties have until July 3rd to respond to these proposals.