Credit card firms pushing people into long term debt, warns Citizens Advice
Charity publishes major new report examining consumer borrowing and long term consumer debt problems in Britain
Major new research by Citizens Advice finds that nearly 1 in 5 people struggling with debts has had their credit card limit raised without them requesting it -a practice the charity would like to see banned.
After the Bank of England issued a warning to lenders about how they are granting credit to consumers, Citizens Advice says poor affordability checks by firms are making people’s financial situation worse.
Consumer borrowing has risen to over £200 billion and over a third of this - £67 billion - is on credit cards.
The charity’s major new report, Stuck in Debt, reveals that people struggling with long term credit card debt were more likely to have their limit raised. 18% of struggling credit card users had their limit raised in the past year without requesting it, compared to 12% of all credit card holders.
People with credit card debts were also more likely to get into long term debt than those with personal loans and were less able to pay their debt down. Only 60% of people struggling with credit card debt were able to reduce it over two years, compared to 72% of people struggling with a personal loan - with credit card borrowers paying off £449 over two years, compared to a drop of £620 for people with personal loans.
Citizens Advice is also concerned that firms are not providing support early enough to people who despite meeting the minimum repayments are struggling with long term credit card debt.
The charity is calling for changes to protect people from falling into long term credit card debt, including:
Firms to be banned from raising people’s credit limits without obtaining their explicit consent to give people more protection against ever increasing debt.
The Financial Conduct Authority to provide clear guidance to lenders stressing that before increasing a borrower’s limit, they must check their ability to repay it.
Citizens Advice helped nearly 66,000 people with over 140,000 credit card debt problems in the last year.
One pensioner Citizens Advice helped was repeatedly called by firms offering more credit cards - despite the fact that she could only afford to make minimum repayments on her existing cards. She used the cards to meet her essential bills and ended up with a total of 21 credit cards and debts totaling £70,000.
Another man the charity helped owed £15,000 on four different credit cards, but despite only making minimum repayments on each card which just covered the interest, he was notified by all four providers that they were increasing his credit limit. He turned to Citizens Advice for help when his debts hit £30,000.
Citizens Advice Chief Executive, Gillian Guy, said:
“Irresponsible offers of further credit are pushing people into long term debt cycles.
“Citizens Advice helps thousands of people each year with credit card problems - including those struggling with large debts on several different cards that will take them years to pay off.
“It’s clear that irresponsible behaviour by some lenders is making people’s debt situation worse - such as offering more credit when they already have thousands of pounds of unpaid debt.
“The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances.
“Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support - rather than more credit.”
The FCA has announced a range of proposals to help those already in long term credit card debt - who are spending more on credit card interest charges than paying off the total amount they owe. It says lenders should contact customers who have been in this situation for 3 years to arrange a plan to pay their outstanding balance more quickly.
Citizens Advice says lenders should be asked to intervene sooner - at the very latest after two years - to help people struggling with unaffordable debt.
Notes to editors
- Citizens Advice commissioned a nationally representative opinion poll with a number of questions relating to household finances, life events, debt, savings, expenditure and other behaviours. Online field research with 2,116 respondents was conducted 23 to 26 June 2017. The figures have been weighted and are representative of all UK adults (aged 18+).
- The survey defined people in problem debt as those who felt their debts were a burden and had not felt able to afford household bills or debt repayments for more than a year.
- Citizens Advice calculates that the average credit card debt of British adults is £1,600.
- The number of people in long term credit card debt was calculated using longitudinal data from the ONS Wealth and Assets Survey. This found that of people struggling with debts in 2010-12 who used a credit card, 48% were still struggling two years later. This is equivalent to 900,000 people.
- The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
- The advice provided by the Citizens Advice service is free, independent, confidential and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
- To get advice online or find your local Citizens Advice in England and Wales, visit citizensadvice.org.uk
- You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.
- Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full service statistics see our publication Advice trends.
- Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.