The UK’s Financial Conduct Authority (FCA) asked banks in September 2018 to look at their current credit card customers and identify those that have only been paying minimum interest payments.
This was to help those who are struggling with persistent credit card debt. Once done, the identified customers were then given 18 months to start bringing down the capital they owed.
The deadline was set to February 2020 and those who still have high amounts pending will have their credit cards suspended.
The key objective of the new rules is to wean off people from depending on debt so that they can get on a dedicated repayment plan. However, some experts point out that this move might backfire.
Many people are living constantly on borrowed money because of fluctuating incomes.
Myles Fitt, the financial health spokesman of Citizens Advice Scotland said that the proposed changes will help a small percentage of this demographic to pay off their debt but it will have a negative impact on most of this demographic as they have insecure incomes and depend heavily on their credit cards. Taking it away from this will put them at a disadvantage and increase their debt demands.
Through most of 2018, most of the major credit card providers in the UK have been contacting customers who have not been making a dent in their credit card debt. They were then warned to increase their payments so that they can fully pay off their debt.
Many of these debtors have been mainly paying off the minimum so that they can borrow money regularly. But the FCA has become increasingly concerned about people who have paid more in interest fees than their entire debt. This is why they laid down the law in 2018. The banks should have sent at least three warning letters by now about the regulations.
High Debt Across the Country
According to the FCA, there are 5.6 million credit cardholders in the UK who are living a hard-scrabble existence. The regulations are aimed at cutting down this amount, ensuring that they don’t have the burden of credit card debt on top of their financial worries.
Besides cutting their credit cards off, UK banks are supposed to offer repayment schemes that will last over three to four years. Some suggestions include transferring the credit card balance to a personal loan with a lower interest rate.
