The UK’s Financial Conduct Authority (FCA) has issued new rules for the credit card market, as part of its efforts to reduce interest charges.
The regulator is estimating that the new rules will help consumers to save between £310m and £1.3bn per year via lower interest charges.
The new rules will be effective from 1 March, while firms are provided with time up to 1 September to follow.
FCA has framed new rules to offer more protection for credit card customers in persistent debt or at risk of financial difficulties.
The new rules are composed based on a study of the credit card market. It analysed the accounts of 34 million credit card customers over a period of five years and surveyed around 40,000 consumers.
As per the figures, customers in persistent debt pay on average about £2.50 in interest and charges for every £1 that they repay of their borrowing.
According to the FCA, there are around four million accounts in persistent debt, which are making profits for the firms.
Under the new rules, the firms need to take a series of steps to support customers who are making low repayments over a long period.
The provider has to show a way to repay in a reasonable period, if a customer is in persistent debt for 36 months.
FCA strategy and competition director Christopher Woolard said: “These new rules will significantly reduce the numbers of customers with problem credit card debt.
Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time - without making much headway on the outstanding balance.
“Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help.”
Image: FCA has published its final policy statement on new rules for the credit card market. Photo: courtesy of phanlop88 / FreeDigitalPhotos.net.