UK banks increase credit card limits of 6 million customers
Fears of a credit card debt bubble were mounting as figures showed banks are increasing the borrowing limit of six million customers a year without their consent. Next month City watchdogs will publish new voluntary guidelines asking banks to stop the practice, but experts warned the action may not be enough to avert a debt crisis.
Citizens Advice is calling on Phillip Hammond in his Budget next week to stop the practice by forcing credit card providers to stop increasing people's credit limits. Analysis of 12 of the UK's biggest credit card providers' terms and conditions found 11 had clauses which allowed them to raise customers' credit limits without their consent.
The practice is pushing millions of people further into debt at a time when an increasing number are struggling to manage their repayments, the charity said. On average credit card holders were given rises of £1,481 without being asked, with more than one in 10 people (12 per cent) receiving increases of £3,000 or more.
This is despite 85 per cent of people thinking that credit card companies should always ask permission before increasing someone's limit.
Research carried out for Citizens Advice found that in the past 12 months, 28 per cent of credit card holders - equating to 8.4 million people across the UK - received a credit limit increase. But only around a quarter (23 per cent) of credit card holders who were given a rise said they had actually asked for it - suggesting the remaining three-quarters of limit raises were initiated by credit card companies.
Citizens Advice found 32 per cent of people who are not confident they can pay back their current debts were given a rise. It said in one case it had seen a woman approach it after building up £3,500 of credit card debt she was unable to pay back. Initially she had a limit of £500 which she used for unexpected bills, but when she reached the limit her credit was extended.
This happened multiple times, Citizens Advice said. Gillian Guy, chief executive of Citizens Advice, said: "Rather than credit card holders seeking to take on more debts, lenders are actively pushing it on people without enough consideration as to who can afford to pay and who can't.
"Few consumers support unsolicited increases and our research shows that they make people's debt problems worse. "The Chancellor must step in to prevent credit card companies weighing people down with unwanted debt particularly when they are already struggling to keep their heads above water." Citizens Advice made the findings from a survey of more than 1,300 people who have credit cards.
Brits took on more credit card debt during September than any month since before the Brexit, Bank of England figures show, as consumers continued to borrow to sustain spending. Borrowers loaded another £641m onto credit cards during the month, the sharpest increase in debt since May 2016.
Trade body UK Finance said its members are committed to responsible lending - and if a customer is struggling with repayments they should speak to their lender.