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Credit card customers set to save £80m a year in fees

Thursday, 7th March 2019

The Financial Conduct authority (FCA) has written to credit card providers after its own research revealed too many firms were applying multiple late payment fees, sometimes in a single billing cycle, when it was evident that the card holder was experiencing financial difficulty.

For some card holders the applied late payment fees would then have an impact on their already maxed out credit card taking the card holder over their agreed credit limit, this was then an opportunity for the credit card provider to apply another fee for breaching that limit.

The FCA found that in many cases firms who were continuing to apply fees in such instances potentially made the customer’s position worse.

Lower credit limits more at risk

The regulator identified that for customers with lower credit limits, the fees and charges represented a higher proportion of the outstanding debt.

What fees are involved?

The fees looked at by the regulator were returned payment fees, over-limit fees, and late fees.

The FCA review is part of a sweep on the credit industry in general focus on reducing the risk of harm that flows from customers being in debt that they cannot afford to repay.

The FCA letters

The FCA has written to all credit card firms to highlight the findings of its multi-firm review of fees and charges in prime and sub-prime credit card products and firms. It shared the findings of its review with participant firms and a number of changes have been made to how customers are charged fees. This includes the removing and capping of fees and renewed communication to prevent some fees from being triggered in the first place. You can read the letters here

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:

'Our research showed that a large number of customers were often missing payments but continuing to be charged fees.  In some cases, customers ended up being charged multiple fees as a result of each missed payment.  This may suggest that firms are not adequately identifying and dealing appropriately with signs of actual or possible financial difficulties.

'We have fed back our findings to the firms in our sample. As a result, a number of changes have been made to the charging strategies of firms and this has led to consumer savings of over £80 million.'

Firms need to consider their policies says FCA

The FCA is encouraging firms to consider the impact their policies and procedures in relation to fees and charges will have on achieving fair customer outcomes. For example, asking:

  • What firms regard as signs of actual or possible financial difficulties?
  • Are (multiple) fees and charges considered as one of those signs?
  • What systems firms use to identify for customers who are repeatedly incurring fees on their account?
  • What firms actually do upon identifying a sign of actual or potential financial difficulty?

Mike Thomas, Founder of DebtWizard.com said:

“Until now there has been no real incentive for a credit card provider to reduce or stop the fees for late payments or breaching the agreed credit limit. Why? It’s quite simple really, they make around £80 million a year from this practice. Although I warmly welcome this initiative from the regulator I do wonder where and how the credit card providers will recoup their losses, £80 million is lot to lose in a year.”

Full press release from the FCA here

Help and advice for credit card debt – Five top tips

With so much credit on cards it must come of no surprise that some of us will experience problems repaying them. Redundancy, illness, separation of a relationship or even an unexpected bill can put a strain on our finances, but help is at hand if that credit card debt is getting out of control with our five top tips.

What is best for you depends on your circumstances and the ability to pay so if the answer is not in this guide, don’t panic, speak to us as we may be able to find other debt solutions to help you best manage your debt. You will be surprised at how many there are and how they might just work for you.

DebtWizard - Five top tips on reducing that credit card debt 

In debt? Don't know where to start?

Do you need help with your debts but don’t know where to start?

If this is you then the DebtWizard bespoke five point guide should get you on your way and may save you thousands of pounds in unnecessary fees.

5 point guide on how to get out of debt





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