5m left with credit card debts they can’t repay

FIVE million people are drowning in credit card debt that costs up to £3.50 for every pound they borrow.

The figures were revealed last night by the boss of the City watchdog who said the debtors would find it almost impossible to repay the money.

Andrew Bailey launched a scathing attack on card companies for failing to help their most pressed customers.

He revealed that high fees and charges mean that for every £100 borrowed some families are repaying a total of £350.

This is often because they repay only the minimum each month, allowing interest to build up for years.

Speaking at an annual Mansion House dinner, Mr Bailey said he was concerned about firms tempting highrisk customers with introductory offers that lead them into financial trouble.

‘We are concerned about the cost and terms of such credit and the propensity for overindebtedness,’ said the Financial Conduct Authority chief executive. ‘And these things are linked. Some of the terms encourage over-indebtedness with little or no incentive to pay down debts.’

Competition in the card market is fierce because lenders view it as a reliable source of profits in a world of recordlow interest rates.

The best deal on the market offers 32 months of interestfree spending before rates shoot up. This allows shoppers to borrow for free if they pay off their debts in full before the offer ends.

But critics say it also encourages binges where repayment is put off until too late.

Mr Bailey, who is tipped as a future governor of the Bank of England, said FCA research had uncovered huge numbers of people dangerously reliant on cards. He said: ‘We identified that around five million people experience real difficulties in paying off their balance, and credit cards have become a source of long-term expensive debt, something for which they were not designed.

‘It is not untypical for such consumers to be paying

‘Dangerous reliance’

around £2.50 in interest and charges for every pound of balance they repay.

‘Firms can lack incentives to tackle this as these customers are profitable.’

The FCA’s credit card market study last year laid bare the struggle many borrowers have in getting back in the black. It showed that 6.9 per cent of cardholders – around two million – were behind on payments or had defaulted altogether in 2014.

Another two million were using at least 90 per cent of their credit allowance for a year or more while making interest payments on what they owed.

And 8.9 per cent of active credit cards in January 2015, or 5.1 million accounts, will take more than a decade to pay their balances off.

Last night, Mr Bailey said he was determined to tackle the problem.

However he said a cap on charges would be unworkable because credit cards allow people to repeatedly borrow money and pay it back, meaning the total amount of debt they have taken on is difficult to calculate.

It will be seen as a coded rebuke to Labour’s plans to stop anyone having to pay back more than double what they borrowed.

Mr Bailey said: ‘ We have proposed a set of measures designed to reduce the number of people with persistent credit card debt, and rebalance incentives including greater control over credit limit increases and ensuring that firms intervene to help such customers, including options to switch to cheaper loans and cancel debt.

‘ We want people to get assistance much earlier. However, we have stopped short of introducing a cap on charges. Why? Credit cards are a form of revolving credit, and we do not see it as practical to implement a cap in the way that is by comparison straightforward for fixed sum payday loans.’

In a wide-ranging speech, Mr Bailey also took aim at unarranged overdraft fees.