Credit card market faces FCA review


Colorful stack of credit cards and shopping gift cards.  Macro with extremely shallow dof.

A competition probe into the £150 billion credit card market is to be launched as the head of the City regulator raised concerns about some vulnerable consumers being offered what are akin to "payday loans with plastic".

The Financial Conduct Authority (FCA), which took over supervision of the consumer credit market on Tuesday, confirmed it intends to undertake the review at the end of this year.

Martin Wheatley, chief executive of the FCA, told a credit summit in London that 30 million people, or around two-thirds of UK adults, hold at least one credit card, meaning it is right that the regulator explores whether the market is working effectively for consumers.

The review will put a particular focus on how the industry works with people who are struggling financially.

Mr Wheatley said that among the nation's credit card holders, around 3.7% only make minimum payments over a 12-month period, equating to more than one million borrowers.

He said that while the investigation has no pre-determined agenda, an obvious question for the industry is: "Why are card issuers providing the means, in some cases, for the most indebted consumers to escalate their way into further debt?"

The questions to be considered include whether consumers who leave their balances every month are subsidising those who pay them off.

He also asked: "Is there sufficient debate at the margins of the industry, particularly where we see cards issued with low credit limits of a couple of hundred pounds and high APRs - payday loans with plastic, if you will?"

Mr Wheatley said it is "not uncommon" for the most vulnerable households to hold multiple cards and revolve multiple balances month-by-month.

The regulator said research showed nine million Britons were considered to be in serious debt and that a considerable number of people, dubbed "survival borrowers", often feel they have no option but to borrow money, through a payday loan or using a credit card, to help pay their bills.

According to debt charity StepChange, around 10% of people who visit it for advice and who have an average total debt of £27,000 have five or more credit cards.

Some £150 billion was spent on credit cards last year and outstanding balances amounted to around £57 billion.

Mr Wheatley said that on the face of it, there are many credit card brands to choose from.

But the FCA will look at whether this "surface competition" is reflected more deeply in the value offered by products and whether consumer inertia or a lack of willpower are significant factors in people digging themselves into debt.

Mr Wheatley said there is "much to applaud and admire" about the industry and credit cards will remain "enormously important products" in UK wallets.

Richard Koch, head of policy at the UK Cards Association, said: "We have been working with the FCA as the new regulator comes into existence, and it's no surprise that officials want to explore how a market as important to consumers as this one is working.

"The industry has a long-standing commitment to responsible lending and transparency, with a number of recent changes on credit limits and repricing of debt, improved transparency, and forbearance for those who find themselves missing repayments.

"The evidence shows that consumers are seeing the benefits as they become more savvy in getting the best out of their cards, demonstrated by credit card debt falling while spending has risen.

"That said, we are not complacent about the small number of customers who find that changed circumstances, such as illness or redundancy, mean they need more support with managing their debts, and we welcome all conversations about how we can ensure we are doing everything possible to support these cardholders."

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