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.
From 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
Encourage them to increase their payments so that they pay off their balance more quickly and pay less interest overall
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’ll start 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.
If, after a further nine months (so, 36 months in total) a customer is still continuing to pay more in interest, fees and charges than on reducing their balance, we are required to take further steps to support them. This may include:
stopping them from being able to use their credit card, either temporarily or permanently, in order to prevent them from getting into further debt;
increasing their contractual monthly minimum payment. Taking into account our understanding of their ability to make repayments, we can change their minimum payment if we reasonably believe they are in persistent debt based on their payment history to date, and it is reasonable for us to do so. We will tell customers before we do this.