Banks in Britain have been given an order to aid people to pay off their credit card loans. The said order is a part of a series of new measures that were introduced by the Financial Conduct Authority that aims to tackle the personal debt crisis.
Christopher Woolard of the FCA informed the BBC: “The new rules are intended to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help.” The banks will still be able to suspend a credit card of a user following a customer’s failure to make any progress in repaying their debts.
According to the FCA, approximately 30 million consumers possess a credit card in Britain, and an estimated 3.3 million customers are suffering from persistent debt – this happens when they pay more charges and interest than they repay their balance over a period of 18 months. The cardholders pay an average of £2.50 worth of charges and interest for every £1 of debt that they repay.
Under the new rules that were introduced, credit card companies will contact their customers following 18 months of persistent debt to suggest that they speed up repayments and after three years of persistent debt, they must offer customers with a solution to repay their balances within a reasonable period. That could involve waiving, canceling, or cutting any fees, charges, or interest from that point.
The said changes will come into force this coming March and will become compulsory starting September. The FCA said that it would save consumers around £310m to £1.3bn per year in interest charges.
“The aim,” Reuters says, “is to stop people using credit card debt as an expensive long-term loan that is not repaid.”
Scotland Trust Deed company, Scottishtrustdeed.co.uk said it was a step in the right direction for consumers and the reforms were well overdue.
“Interest and charges are one of the main contributing factors to spiraling debt problems and why people begin looking for debt advice. With new laws enforcing help from creditors should see a overall reduction in compulsory debt solutions being offered to the public,” said the company.