FCA Sets New Rules In The UK, And You Might Lose Your Credit Cards Because Of Them. Here Are The Details!
29 Dec 2019
Approx Reading time: 3 minutes
- Thousands of people in the UK are at risk of losing the credit cards due to new rules pertaining to affordability, as set by the Financial Conduct Authority.
- The changes are expected to take place at the start of the new year.
Last year, the regulatory authority had mandated all credit card providers operating within the country to highlight all those customers that maintained a persistent debt record with them over the preceding 18 months. After this identification, providers were given an 18 month period to advise their customers to increase the size of payments they made on their credit cards.
These credit card providers include some of the biggest financial service providers in the UK, including the Royal Bank of Scotland and Barclays.
As per the new rules, those of such credit cardholders who are unable to increase the monthly contribution they make to their outstanding credit balance, either due to non-compliance with their bank’s recommendation or inability to afford an increase in payment, may have to give up their credit cards altogether. This may happen as soon as February of 2020.
The new regulations will impact only those cardholders that have a consistent outstanding credit balance over the past 36 months, as such credit customers now find themselves paying over and above the principal amount they had initially borrowed as interest charges and other fees.
Many of these customers habitually make only the minimum payment that is required by credit card providers to avoid defaulting on the outstanding debt, failing to realize that their actions are leading them towards serious and inevitable financial troubles in the future.
Credit cards are extremely popular in the UK. According to reported figures, 60% of the adult population in the country holds a credit card. That is 30 million people, many of whom operate multiple credit card accounts. The FCA has highlighted around 5.6 million accounts that it believes could potentially be owned by customers who are currently facing financial struggles, and 2 million of these accounts may not receive increased payments by February.
Banks are obviously concerned as the closure of credit card accounts means loss of income, but customers also need to worry as such closure may have a negative impact on their credit score. Many customers are still being contacted by banks to make the necessary changes, mostly because they have been directed to notify their customers at least thrice before the 36-month period ends in February.
Some firms have developed alternative solutions for their customers, such as converting credit card debt into a personal loan that may be repaid over a period of a few years. These personal loans will also carry a lower interest charge.
A major benefit of the new rules is that customers, in total, would likely save around £1.3 billion, in total, per year. Also, the new rules would prevent the creation of chronic financial difficulties for many customers, and also help in the resolution of debt-related issues.