Image copyright PA

People with long-standing debts on credit cards are receiving letters encouraging them to make more than the minimum payments.

Rules set by the City regulator mean that many people will now be receiving a second reminder suggesting they speed up repayments.

Providers could suspend cards if borrowers do not act by March 2020.

Debt charity StepChange has raised concerns that the warnings may not be clear enough.

Debt spiral

The Financial Conduct Authority (FCA) imposed the rules after it emerged that providers had made large profits from their 3.3 million UK customers in persistent debt.

Persistent debt is defined as when customers have paid more in interest and charges than they have repaid of their borrowing over an 18-month period.

These cardholders were paying an average of £2.50 in interest and charges for every £1 of debt they repay.

Credit card companies allow customers to opt out of unsolicited increases in their credit limit. Those who have been in persistent debt for 12 months or more no longer receive such credit limit rises.

Firms were also told to send letters to borrowers after 18 months and 27 months of persistent debt, urging people to pay off credit card debts at a faster rate.

After three years of persistent debt, the credit card company must offer customers a way to repay their balance in a reasonable period, but such a plan could raise repayment amounts.

They could also cut, waive or cancel any interest, fees or charges from that point if borrowers are struggling to repay.

However, StepChange said that as letters from card providers varied, it was not always entirely clear to individuals what was going to happen by next March.

Its own pilot project suggested that few people had taken any action so far.

"This begs the question about whether that's because they haven't realised the importance of doing so, haven't noticed their firm's communications, or simply can't afford to pay more," said Phil Andrew, chief executive of StepChange.

"At this point, there may be significant numbers of people with hidden problem debt who are coping on a minimum payment basis, but could tip over into difficulty once higher payments are required."

How the debt racks up

A customer who borrows £3,000 on a credit card with an APR of 19%, and only makes minimum repayments - starting at £74 per month and reducing over time - would typically take 27 years and seven months to pay it off (assuming there is no further spending on the card). The interest paid would be £4,192

If the customer fixed their repayments at £74 per month rather than only making minimum repayments, they would pay it off in five years and two months. The interest paid would be £1,576

If they set their monthly repayment at £108 per month, they would pay their balance off in three years. The interest paid would be £879

Source: FCA