FCA warns credit card providers on persistent debt customers

Regulator warns credit card companies to treat customers fairly when rules about persistent credit card debt of 36 months come into force in February and March.

They caution against firms imposed a blanket credit card suspension on customers struggling to repay their debts.

Instead, they have reiterated the two scenarios where suspending cards is appropriate and reminded companies to support rather than penalise customers.

Credit: Piotr Swat/Shutterstock.com

PD36

The regulations about to come into force are a consequence of rules introduced by the FCA in 2018 which guide credit card companies on how to deal with customers in persistent debt.

This element of the regulations, known as PD36, forces companies to intervene to help customers who have paid more in fees and charges over the preceding 36 months than they have paid towards the debt itself.

Previous milestones for firms include 18 months, when they had to contact customers with a prompt to change their repayment schedule, and 27 months, when a reminder was sent.

The 36-month threshold is designed to be an intervention point where credit card providers offer support to struggling borrowers, but there are concerns it's being treated as a cut-off point for those in debt by some firms.

FCA warning

In their letter to credit card companies, the FCA remind providers the aim of the intervention is to help customers repay the debt in a reasonable period of no more than four years.

They also point out that repayment options must be reasonable and sustainable for customers, along with reminding providers that customers must be asked to make contact to confirm their situation and instructing providers to include information about getting help with debt in their letters.

What seems to be alarming the FCA is the anecdotal evidence from worried customers that some credit card providers are imposing a blanket suspension of credit cards for any customers reaching the PD36 threshold.

They make clear there are only two instances where suspension or cancellation is required: when a customer doesn't respond to proposed payment options within the time specified and when a customer confirms a repayment option is affordable yet refuse to increase their payments.

Other than this, the emphasis within the FCA's guidelines is on supporting customers to get out of debt rather than simply cutting off their credit immediately.

Impact of reforms

It may be that credit card providers are just acting over-zealously in attempting to issue blanket suspensions for customers hitting the PD36 threshold in case they're accused of not acting stringently enough.

That said, the FCA letter reminds them they're in danger of breaching customers' rights to receive justifiable reasons for the suspension of cancellation of credit if they do impose blanket credit bans on such customers.

By this point, credit card providers should be operationally ready to intervene and help customers with their persistent credit card debt, yet there's always the possibility that reforms designed to help customers in debt can backfire.

We're seeing a similar problem in the rise of overdraft costs which the FCA say will leave most customers with no change at the same time as writing to banks to ask them to explain their high rates.

It's understandable that credit card companies, like overdraft providers, will want to maximise their own profits and not potentially lose money by offering support to customers.

However, the FCA's letter serves as a warning that this isn't within the spirit of the reforms - and is likely illegal too.