Credit card spending limits are being increased for those who can least afford repayments – without their knowledge, Citizens Advice has warned.
According to Citizens Advice, unsolicited spending increased could impact as many as six million credit card holders across the UK. Based on their sample of 1,300 account holders, the charity suggested that their research shows around 1.4 million of those affected would be struggling financially – an issue that’s being exacerbated with increased debt.
Gillian Guy, Citizens Advice’s Chief Executive, was scathing about lenders who, she believes, are entirely culpable. She said:
‘Rather than credit card holders seeking to take on more debts, lenders are actively pushing it on people without enough consideration as to who can afford to pay and who can’t. Few consumers support unsolicited increases and our research shows that they make people’s debt problems worse.
The charity was also clear as to how to solve the problem, with Guy announcing that, ‘The chancellor must step in to prevent credit card companies weighing people down with unwanted debt – particularly when they are already struggling to keep their heads above water.’
Despite the charity’s concerns, it’s fair to say financial institutions are already making improvements to the services they provide – a credit crunch would, after all, impact them as much as households. The Bank of England has already issued directions to banks that put consumer borrowing front-and-centre. At the same time, they’ve introduced new rules to curb excessive bonuses designed to encourage financial operators from signing new borrowers, regardless of their ability to repay the debt.
Lenders have already agreed to a voluntary code of conduct with the Financial Conduct Authority (FCA), which sees restrictions on limits for those struggling financially. It’s an agreement that Richard Koch, Head of Cards at finance body UK Finance, believes lenders are ‘completely committed’ to upholding. He said:
Credit card providers are completely committed to responsible lending and the industry has come together to voluntarily agree new protocols to ask customers whether they would prefer to opt out or opt in for any credit limit increase offers. Furthermore, the customers who the Financial Conduct Authority and Citizens Advice are most concerned about will be excluded from receiving any such offers.The regulator has confirmed that it is satisfied that the proposal relating to unsolicited credit limit increases achieves its objectives in an effective and timely manner. The industry is committed to helping the minority of cardholders who do not use a credit card in a way which is in their best interests. All our members undertake a thorough risk and affordability assessment of a customer’s finances whenever they apply for credit. This degree of rigour continues throughout the relationship, with ongoing monitoring of how the customer uses the credit product.’
What Citizens Advice is asking for, then, is slightly different to the agreements already in place between credit card companies and the FCA: They want a ban on unsolicited credit card limit increases. Rather than companies choosing to up spending limits on card – whether borrowers want it or not – their preferred outcome would see customers voluntarily requesting higher limits on their borrowing.
Whichever way this swings, it’s good to see the issue of consumer borrowing brought into the spotlight just as shops are preparing to put up their Christmas decorations.