CREDIT CRUNCH
At-risk customers weeks away from being barred from money
Thousands of struggling credit card customers could have t heir accounts suspended next month because of new rules.
Banks were told to identify atrisk customers in September 2018 and give them 18 months to begin bringing down the capital sum they owed rather than making minimum interest payments.
But it means that further action – including suspending and closing accounts – is expected to kick in during February against those who have failed to respond.
The Financial Conduct Authority (FCA) regulations are designed to help people in persistent debt by forcing them to agree a repayment plan.
Citizens Advice Scotland (CAS) has warned the scheme could backfire on people living constantly on borrowed money.
The charity’s financial health spokesman, Myles Fitt, said: “Persistent credit card debt is being tackled by the FCA and some people who have not been paying off their credit cards may be in for reality shock in the new year if they have been ignoring persistent debt letters coming through their letterboxes.
“These changes will help some people to pay off their debts quicker but we’re concerned about people who are forced to live in persistent debt because of insecure incomes in the first place.
“These changes could be a real problem for people who are u nable t o come t o an arrangement with their credit card lender and this may trigger an increased demand for help with debts.”
Credit card providers including high street banks Barclays, Lloyds and Royal Bank of Scot land had to contact customers in 2018 who had been in debt for at least 18 months.
They were then given a further 18 months to convince them to increase their payments in order to begin paying off the debt.
The FCA regulations were designed for customers who ended up paying more in interest fees and charges than the original amount they borrowed.
Many would have been making minimum payments each month in order to keep open their line of credit.
About 60 per cent of Scotland’s adult population are thought to have credit cards. The FCA has estimated that about 5.6million credit card accounts are held by customers who are struggling financially across the UK.
Credit card companies have been ordered to send at least three letters to customers warning them to raise their payments.
Fi rms must then of fer alternative ways of repaying more quickly, usually over a period of three to four years. These could include transferring a credit card balance to a personal loan with lower interest.
The rules are expected to cut into revenues for credit card firms by up to £1.3billion a year.
CAS is one of the biggest providers of free debt advice in Scotland.
Fitt said: “If people need advice, they can turn to their local CAB to find a solution that works for them.”
Households are estimated to have paid back more than they spent on credit cards in the run-up to Christmas for the first time in six years.
Bank of England figures show borrowers shaved £120million off Britain’s total card debt in November.