Britain’s financial watchdog has warned credit card firms against the blanket suspension of cards of consumers who are stuck in a debt spiral, telling them to reduce or waive interest and other charges instead.

The Financial Conduct Authority’s affordability rules brought in in March 2018 to cut problem credit card debt have put thousands at risk of having their accounts suspended from this month.

The watchdog has written to the bosses of credit card firms to express concern that they may cancel or suspend credit cards for everyone in persistent debt, including those willing to engage and come to an agreement. It told firms that they are not allowed to suspend a credit card without having an objectively justifiable reason.

Under the new rules, credit card providers, including Barclays, Lloyds and Royal Bank of Scotland, were forced to identify customers who had been in persistent debt for at least 18 months, and were given a further 18 months to convince customers to increase their payments. This means that from February, when the first 36-month period draws to a close, customers who fail to respond or cannot afford higher payments could have their credit cards suspended.

As of November, there were 1.78 million people stuck in persistent credit card debt where they end up paying more in interest, fees and charges than they are paying off their balance. The FCA estimates that getting them out of this cycle could save them up to £1.3bn a year in lower interest charges.

The watchdog is concerned that those borrowers may not respond to letters from credit card providers, which have been ordered to send at least three letters. It said that if customers cannot afford the options proposed by the firm, they must be treated with forbearance and due consideration.

Jonathan Davidson, the executive director of supervision for retail and authorisations at the FCA, said: “Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly. If a customer cannot afford the firm’s proposals for how to do this, the firm must offer forbearance, potentially including reducing, waiving or cancelling any interest, fees or charges.

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“My advice to consumers is don’t bury your head in the sand. If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them. If we find firms are not offering their customers the appropriate level of help, we will not hesitate to take action.”

Peter Tutton, the head of policy at the debt charity StepChange, said: “The FCA is unequivocal that firms should not cancel people’s cards wholesale. We particularly welcome the regulator telling firms to include in their letters a reminder that forbearance is available if people cannot afford what is suggested, and that they should signpost to independent advice, especially for those receiving letters from more than one card provider.”

Gareth Shaw, the head of money at the consumer group Which?, added: “The effects of living in persistent debt can be devastating, so it’s important that those who are likely to be impacted by the new rules take notice of how these new measures could affect their finances.”



