A recent report by Citizens Advice has found that not only can credit card limits be raised without borrowers’ permission, but that this is actually more likely to happen when customers are already struggling with debt. These statistics have led the Chief Executive of Citizens Advice, Gillian Guy, to accuse credit card providers of ‘irresponsible’ lending.
Citizens Advice found that one in five people who are struggling financially have seen the limit on their credit card increased without having actually requested more credit. This is especially alarming since it is 6% higher than the overall proportion of people who have seen their credit card limit automatically increase.
12% of all UK credit card holders have seen an unrequested increase, and this rises to 18% for people only able to pay the minimum balance on their card every month. These surprising statistics have led Citizens Advice to propose a ban on all credit increases without the account holder’s explicit consent. The charity believe that this action will allow consumers – especially those with problem debt – to grasp better control over their finances, and less likely to spiral into further debt. This spiral of credit card debt is already a reality for 3.3 million people across the UK, for whom interest payments have outstripped their actual borrowing.
A report by the Financial Conduct Authority (FCA) also disapproved this kind of lending, saying that ‘customers in persistent debt are profitable for credit card companies’, and accused companies of not ‘routinely intervening to help them’. This attitude towards heavily indebted customers is the same spark which prompted Citizens Advice to brand the automatic raising of credit card limits for people in debt as ‘irresponsible’. The FCA suggested that this could be remedied by companies having more policies in place to help customers for whom unmanageable debt is a recurring problem. Earlier this year the financial body suggested that after 18 months of persistent debt, credit card firms should prompt their customers to make faster repayments, to help avoid interest spiralling out of control. In extreme cases, the FCA proposed, interest payments could even be frozen to help customers get their debts back under control.
UK Credit Card Debt Growing
These revelations come in the wake of credit card borrowing in the UK surging to levels not seen since 2008 – more transactions are being carried out via plastic than ever before. From January to June 2017, credit and debit card spending increased by 12%. This appears to be partly due to the increasing use of contactless technology, but increased borrowing on credit cards is also a factor. In fact, over a third of all outstanding personal debt in the UK is on credit cards, amounting to £68.5 billion. Citizens Advice also found that people with credit card debt were more likely to get into long-term debt than those who had borrowed money through personal loans. A survey by Creditfix, the UK’s largest insolvency company, also found that 50% of respondents reported struggling financially in the days leading up to payday, with a further 30% admitting to struggling ‘somewhat’.
Stagnating wages are being partly blamed for the continuing surge in consumer credit, as an increasing volume of consumers are resorting to credit on a regular basis to pay for essentials such as rent and bills. Debit, credit, and charge card spending is currently growing five times faster than earnings, prompting concern from the Bank of England, who noted earlier this year that consumers who are struggling financially are increasingly turning to credit cards, overdrafts, and personal loans to support their spending. The Financial Capability Strategy also found this year that less than half of UK adults report managing to keep up with their bills without difficulty.
In such a climate, a ban on automatic credit limit increases could be welcome news to people struggling with debt, but only time will tell whether credit card providers will accept the suggestions made by Citizens Advice.