UK Govt Urged To Ban Unilateral Increases In Credit Card Limits

A charity organization called ‘Citizens Advice’ has urged the UK government to ban credit card companies from raising customers’ credit limits without permission. The charity made the appeal after it carried out a survey and discovered that one in five of those facing debt problems said that the card provider had raised their borrowing limit without receiving any request from them.

People facing long term debt in particular were likely to see their credit card limits being increased. Nearly 18 percent of those surveyed said that their maximum borrowing had been increased in the past year, as compared to 12 percent of all credit card holders.

In a statement Gillian Guy Citizens Advice chief executive said

It’s clear that irresponsible behavior by some lenders is making people’s debt situation worse – such as offering more credit when they already have thousands of pounds of unpaid debt. The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit

She stated that the ban would ensure that those suffering from long term debt would have more control over their finances.

Household debt has been rising in the UK even as wages have remained flat and inflation has climbed. Experts fear that the economy is largely being fueled by rising debt. Rating agency Moody’s issued a warning in July this year that the country’s lower-income families were vulnerable to high debt levels as the economy slowed due to Brexit.

The view was backed by data from Bank of England which showed that the amount borrowed by UK consumers using credit cards, unsecured loans and overdrafts was up by 10 percent for the year ending in July, reaching £200 billion, the first time since 2008. Nearly £67 billion, which is a third of this debt is on credit cards.

Official data confirms that real earnings have declined. Average pay was up by 2.1 percent annually in the three months ending June, much below the prevailing inflation rate of 2.6 percent in the same time period. However, overall consumer spending was up by 1.3 percent for the year till July, according to a report form the Office for National Statistics.

UK regulatory body – the Financial Conduct Authority (FCA) has suggested several measures to help those battling long term credit card debt. One of the proposals will require credit card companies to contact customers languishing in such conditions for three years and more to set up a repayment plan. Citizens Advice wants the intervention to happen sooner, preferably by the two year mark.