Consumer: ‘Help borrowers take control of debt’

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A consumer group says The financial watchdog must force lenders to be more transparent and fair.

A CAMPAIGN group has called for greater “transparency, fairness and clarity” across the UK’s £158 billion credit market to help under-pressure consumers cope with their credit card debts.

Consumer group Which? has called on watchdog the Financial Conduct Authority (FCA) to clean up the industry.

It claims the market is currently littered with misleading and unclear information, irresponsible lending practices and a failure to explain risks.

In a new report, called Credit Britain 2, the Which? proposals include capping default fees for all credit products and withholding licences to operate from firms that rely on customers defaulting.

Which? executive director Richard Lloyd said: “The regulator has so far rightly focused on the unscrupulous practices of payday lenders.

“However, we have found problems across the whole of the credit market.

“It’s now more important than ever that all credit products are up to scratch, so that consumers can more easily manage their borrowing.

“The FCA must crack down on poor practices and help put consumers back in control of their credit, and lenders should step up and improve their products and practices.”

There are 30 million registered credit card users in the UK.

The are also 56 million individual credit cards in use, which is a massive 70 per cent of all credit cards held in Europe.

Which? also wants a ban on the term “zero per cent” on credit products that charge an upfront fee and is calling for an end to retailers automatically signing up customers to a credit account they have not actively applied for.

Since the financial crisis, UK households have paid down debt, cutting unsecured borrowing by £50 billion since 2008 to £158 billion.

But Which? warns that, as the economy recovers, consumer debt levels have started to rise again.

The FCA took over regulation of the UK consumer credit market from the Office of Fair Trading in April this year, promising a big shake-up of the industry.

The regulator said it would launch a major probe into how the country’s massive credit card market works for poorer consumers.

At the time FCA chief executive Martin Wheatley said: “Among the UK’s 30 million-plus cardholders, something like 3.7 per cent make minimum payments for 12 months, which is the equivalent to more than a million borrowers making 12 or more consecutive minimum payments.

“There are some obvious questions and challenges here for regulators and industry: why are card issuers providing the means, in some cases, for the most indebted consumers to escalate their way into further debt?”

But head of policy at the UK Cards Association Richard Koch said the credit card industry made a number of changes in 2011 which increased minimum repayments and gave customers longer warnings ahead of rate increases.

Mr Koch said: “In a highly competitive market it’s no surprise there are a wide variety of deals available for customers.

“We acknowledge that this can sometimes make it difficult for consumers to choose.

“We are always looking for ways to help customers make the best decisions, in ways that don’t stifle competition and choice.”

The FCA has recently carried out a major survey of the experiences of people using payday loans, logbook loans, debt management services and credit cards.

The research identifies three distinct borrower groups – survival borrowers, lifestyle borrowers, and reluctant borrowers.

The study explores how these groups use credit and the reasons for doing so.

The extensive research also shows how debts can become unmanageable, and the strategies people use to cope with spiralling debts, showing how unmanageable debt triggers both financial detriment and affects health and wellbeing.


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