Citizens Advice Scotland (CAS) has cautiously welcomed changes to credit card rules due to come into force in 2020 but has a financial health warning for people who are not paying off their credit cards.
New rules introduced by the Financial Conduct Authority (FCA) in September 2018 mean credit card borrowers identified as being in persistent debt could face higher demands for payments or face sanctions on the credit card, such as freezing the card if they don’t respond to communications from their credit card company.
Persistent debt is defined by the FCA as not paying anything towards the actual capital borrowed for 18, 27 and 36 months and paying the interest only.
The FCA rules mean that:
- At 18 and 27 months the customer gets a written reminder to do something.
- At 36 months the credit card lender is meant to actively start dealing with the customer through a number of means – they could come to an arrangement with the customer, they could offer some flexibility or refer them for advice.
- If the customer doesn’t respond they can suspend the credit card or close the account.
The first 36 month letters will start being seen from January 2020.
CAS is supportive that these changes will help some people to manage their credit cards better and cause them to do something about their debts. However, there is concern that others will not have the funds within their budgets to afford to make changes to what they pay and they may experience a financial crunch as a result.
The Citizens Advice network in Scotland issued advice relating to credit, store or charge card debts more than 10,000 times in 2018/19.
CAS Financial Health spokesperson Myles Fitt said:
“Persistent credit card debt is being tackled by the FCA and some people who have not been paying off their credit cards may be in for reality shock in the New Year if they have been ignoring persistent debt letters coming through their letterboxes.
These changes will help some people to pay off their debts quicker, but we’re concerned about people who are forced to live in persistent debt because of insecure incomes in the first place. These changes could be a real problem for people who are unable to come to an arrangement with their credit card lender and this may trigger an increased demand for help with debts.
“The Citizens Advice network in Scotland helps hundreds of thousands of people in Scotland and we are one of the biggest providers of free debt advice in the country, issuing over 100,000 pieces of debt advice last year.
“If people need advice they can turn to their local CAB to find a solution that works for them.”
More information about the FCA's changes can be found here.