‘Wipe charges to help cut credit card debt’

CONSUMERS struggling with credit card debt could see interest and charges wiped after the UK’S financial watchdog struck a deal with providers.

Concerns have been building that Britons are too addicted to credit, with official estimates showing up to 3.3 million people mired in problem debts.

Regulators at the Financial Conduct Authority (FCA) have responded with new rules that could save affected customers up to £1.3billion a year.

Under the changes, lenders would be forced to reduce or cancel interest charges for people struggling to repay.

Customers should also be contacted by their provider and prompted to make faster repayments or get advice on how to pay back debts over time, the watchdog said.

The Bank of England warned earlier this year that unsecured lending, including credit cards and car loans, was growing faster than wages. According to the Bank, UK consumer debt has risen to £200billion. Mark Carney, its governor, has warned lenders they could face major losses of around £30billion on the loans if there is another downturn. The FCA also said it had agreed a voluntary scheme with credit providers under which customers who had been in 12 months of persistent debt would not be offered increases in borrowing, which it said should help 1.4 million people a year.

However, Citizens Advice said the proposals did not go far enough. Gillian Guy, the chief executive, said: “There isn’t a single good reason to allow unsolicited increases to continue. If we are to stop people getting trapped into debt spirals, the FCA should use the extended consultation period to reconsider and end this damaging practice.”

Andrew Bailey, FCA chief executive, defended the proposals, saying they would save customers “billions of pounds” and “real financial hardship”. He added: “We remain committed to action to protect consumers in the credit card market as soon as possible.”

The FCA expects savings from the changes to peak in the first few years at between £310 million and £1.3 billion.

A consultation on the updated proposals, which were first outlined in a paper in April, has begun and will end on Jan 20. The industry will have a sixmonth implementation period.