Following the Financial Conduct Authority’s (FCA) study of the credit card market, service improvements have been introduced across the industry to help customers better manage their credit cards. This support includes letting customers know when they are reaching their credit limit, providing them with the option to change their payment date, giving them greater control over increases in their credit limit, and raising awareness of persistent debt.
‘Persistent debt’ means that, over an 18-month period, the amount that a customer is paying in interest, fees and charges on their credit card is more than they are repaying towards the amount they have borrowed.
This is a term that the FCA has developed to identify customers who are at risk of paying more in interest and who may struggle to repay the credit card debt if they don’t take steps to change how they use and manage their credit card.
Typically, this will be where a customer is making just the minimum payment each month on their credit card. So, most of the payment covers the interest, plus any fees and charges, with a smaller amount going towards repaying the balance.
www.cardcosts.org.uk has a calculator which shows how much interest a customer could potentially save, or how much quicker they could clear their balance by increasing payments.
Since September 2018, credit card providers, including TSB, have been writing to customers whose accounts meet the FCA’s definition of persistent debt over the previous 18 months to:
Make them aware
If they can afford it, encourage them to increase their payments so that they pay off their balance more quickly and pay less interest overall
If they can afford it, encourage them to get in touch if they need our help
Let them know where they can get free, independent and confidential advice
Explain the potential consequences of remaining in persistent debt
From June 2019, we started writing to the customers that we wrote to 9 months previously and whose accounts are still in persistent debt - and so have been for 27 months in total – again, encouraging them to increase their payments if they can afford it or to ask for help if they need it. We also send a follow up SMS, where we hold a valid mobile number.
From January 2020, we’ll start writing to the customers we wrote to in June 2019, whose accounts are at risk of remaining in persistent debt in March 2020 (so, 36 months in total) to explain what will happen if that is the case.
If a customer remains in persistent debt at month 36, there are four main changes we will make:
We will change minimum payment requirements to introduce a fixed monthly payment. This will allow customers to repay their persistent debt balance over four years
To make sure that the focus is on repaying their current debt, customers will not be able to use their card until their persistent debt balance is paid off
We will also make changes to make sure that any future spend after customers have paid off their persistent debt balance cannot fall into persistent debt by increasing the minimum payment requirement on any new transactions
If a customer’s current interest rate for cash withdrawals is different from the interest rate that applies to purchases, we will decrease their cash withdrawal rate so that it is the same as their purchase rate
The letter explains what customers need to do:
If they are happy for their minimum payment to change to a fixed monthly payment, they don’t need to do anything and it will take effect on their 36 month cycle date (so March for customers being written to in January), with their statement confirming the details
If they are concerned that they will be unable to afford the fixed monthly payment, customers should call us on 0345 609 9283 and select option 2. We will discuss their situation and how we can help them repay their balance
If customers don’t want these changes to apply to their account, they can close their account by calling us on 0345 835 3846. They’ll no longer be able to use their card and will need to pay off their balance at the current interest rate(s) applying to their account. However, this is likely to mean they’ll pay it off less quickly and pay more interest overall, so we would encourage them to consider this carefully
We’ll also send a reminder letter in month 35 (so in February for accounts that are at risk of remaining in persistent debt in March)