FCA investigation into credit card market to ensure consumers' interests protected
The FCA are at it again, actually doing something for consumers. This time they have outlined exactly what they are going to do to verify "whether credit cards are marketed in a way that works against the best interests of consumers".
The investigation was announced back in April, but the details of the specific areas being targetted by the FCA has only just been released. Recently Which!!!’ called for an end to 0% credit cards and an increase in minimum payments, both of which look like they will be picked up in the terms of reference for the FCA enquiry.
The FCA will look at three main areas; first, how easy it is for consumers to shop around, compare cards and find one that best meets their needs. Specifically, they are concerned that consumers are unable to shop around effectively owing to product complexity and opaque terms and conditions.
Second, they want to know how firms recover their costs across different cardholder groups- specifically whether certain groups (eg poor credit customers) are adversely impacted, and whether this prevents new products coming to market.
Finally, and in keeping with the FCA comparison of the credit card market to payday lending, they want to look at issues around unaffordable lending and whether particular groups of consumers are over-borrowing or under-repaying their credit card balances. Tied in with this is investigating whether credit cards are marketed in a way that works against the best interests of consumers. This is where 0% cards (that carry a transfer fee) and artificially low minimum repayments are likely to be scrutinised.
Credit cards in the UK are a big business with around 30 million consumers carrying a credit card, accounting for £56.9 billion of outstanding debt.
Mike O’Connor, the chief executive of StepChange Debt Charity, said: “We welcome today’s announcement by the FCA. Too many people are using credit as a safety net when all too often it is a trap which leads to problem debt.
"Credit card debt is one of the most common debt problems we see. Many people are struggling with multiple debts, high balances and interest rates."
Christopher Woolard, director of policy, risk and research at the FCA said: "The credit card market is well-established and hugely important for UK consumers, who hold around 70 per cent of all credit cards in Europe. We want to understand in more depth what drives consumers to make the choices they do and how firms develop the services they offer. We want to make sure that the market works well for all consumers and that card-holders get a fair deal."
The FCA is seeking feedback on the scope of the market study by January 5 next year.