City Watchdog turns attention towards £150bn credit card market to help the 9m Brits in death-spirals of debt

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The City Watchdog said its concerns about nine million Brits considered to be in serious debt have forced it to set up a competition review into the UK’s £150 billion credit card market.

Martin Wheatley, chief executive of the Financial Conduct Authority, warned that "survival-borrowers" are being forced to use credit cards or payday loans to pay bills, and he questioned the role of credit card companies’ involvement in pushing vulnerable people into a deadly spiral of debt.

“Why are card issuers providing the means for the most indebted consumers to escalate their way into further debt?” he said today, after announcing the review which will be undertaken at the end of the year. The FCA took over responsibility for consumer credit on Tuesday this week.

“The key priority has to be those in the most vulnerable circumstances, many of whom are struggling to manage their credit card commitments, as well as other bills,” Mr Wheatley said.

He revealed that among the UK’s 30 million credit card holders, 3.7 per cent make minimum payments for 12 months. That’s the equivalent of more than a million borrowers. “So, we know it’s not uncommon for the most ‘at risk’ households to hold multiple cards and revolve multiple balances month by month,” the FCA’s chief continued.

Card companies said they welcomed the Watchdog’s review. Richard Koch, head of policy at the UK Cards Association, claimed: “The industry has a long-standing commitment to responsible lending and transparency, with a number of recent changes on credit limits and repricing of debt, improved transparency, and forbearance for those who find themselves missing repayments.

“That said, we are not complacent about the small number of customers who find that changed circumstances, such as illness or redundancy, mean they need more support with managing their debts.”

There are some 56 million credit cards in issue in the UK, which accounts for 70 per cent of all European credit cards. But evidence suggests that harder-up folk are more likely to turn to plastic to pay for essentials – and to then fall into financial trouble.

The debt charity StepChange said one in 10 of the people who turn to it for advice have five or more credit cards. Being allowed to flash the plastic even though they may not be able to repay the debt has allowed the average struggling borrower to build up £27,000 of debts, a figure that’s higher than the average UK wage.

Richard Lloyd, executive director of Which? , warned: "Too many credit cards appear to be designed to catch customers out. The FCA should investigate how lenders can help put consumers in control."

David Rodger, chief executive of the charity Debt Advice Foundation, said: "We want to see a wide-ranging investigation into the business practices of credit card providers, particularly the appropriateness of unilateral credit extension facilities. 

"Most people don't realise that credit card companies are encouraging them to keep rolling the debts over from month to month meaning what appears to be a reasonable interest rate adds up to large, often, unmanageable repayments.”