With some 56 million credit cards in issue in the UK – that’s 70% of all European credit cards – it’s fair to say we Brits are pretty attached to our plastic. But is the industry serving us as well as it should be?
That’s what the Financial Conduct Authority (FCA) will be asking as part of its investigation into the £150bn credit card market.
Compared with some high-cost credit options, credit cards might seem pretty innocuous. But they’re not without their problems. In fact, in his speech last week, FCA chief executive Martin Wheatley referred to cards with low limits and high APRs as ‘payday loans with plastic’.
Focus on customers in financial difficulty
With nine million people considered to be in serious debt, the FCA has said its investigation will pay particular attention to how lenders treat those in ‘the most vulnerable circumstances’.
The regulator also highlighted the problem of ‘at risk’ households owning multiple cards and revolving multiples balances month by month.
Our research found that 44% of borrowers don’t repay their credit card balance in full every month – this includes 12% who only pay the minimum, which of course means it takes much longer to clear the debt.
Credit card catches
No matter what your financial circumstances are, too many credit cards appear to be designed to catch customers out.
When you apply for a card, for example, it’s reasonable to assume that you’ll be offered the advertised APR if accepted. But only 51% of successful applicants need to be offered this rate. We think lenders should make it clearer that some customers will be offered a higher rate than advertised.
We also think it should be easier for customers to compare different credit card deals. For example, it’s unlikely you’d know that a 0% balance transfer deal with a fee of 4.9% paid off over six months is the same as a typical credit card APR of 17.9%.
We’d like to see the FCA investigating how lenders can help put people in control by providing clearer information, stopping excessive penalties and encouraging people to shop around without it damaging their credit rating.
Have you been caught out by your credit card? What would you like the FCA to look into as part of its investigation?
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