Which? response to Financial Conduct Authority’s credit card market study

Richard Lloyd, Which? executive director said:

“We welcome the FCA taking a closer look at credit cards. With millions of people using credit cards to pay for essentials, it’s vital that consumers are better protected. 

“Too many credit cards appear to be designed to catch customers out. The FCA should investigate how lenders can help put consumers in control by providing clearer information, stopping excessive penalties and encouraging people to shop around without it damaging their credit record.”

Notes to Editors

1.    We would like the FCA to use its credit card market study to:

·     Encourage consumers to shop around – it’s unfair that making multiple applications for credit can damage your credit score and result in higher interest rates. Shopping around drives competition so should be encouraged.

·     Make adverts clearer – it should be made clearer that some consumers will be offered a higher rate than advertised (only 51% of successful applicants need to be offered the advertised rate).  Where some applicants won’t get the headline rate, they should be given the full range of rates and qualifying criteria.

·     Make it easier to compare – it is difficult to compare balance transfer deals with standard credit cards eg a 0% balance transfer deal with a fee of 4.9% paid off over six months is the same as a typical credit card APR of 17.9%.

·     Stop excessive penalties – if a payment is missed, late or the full balance isn’t cleared, interest can be charged back to the date of each purchase and on any new purchases. Customers paying off the entire bill when the next statement arrives can also lose the next month’s interest free period. 

·     Help people struggling with debt – All lenders should be sharing data with all credit reference agencies to get a full picture of an individual’s financial position. If a customer is starting to struggle with debt, the lender should provide help, including signposting to free debt advice.

2. Recent Which? research shows: 

  • 56% of people have used a credit card in the last 12 months.
  • Of credit card users – 44% don’t repay the total every month. This is made up of 1% who pay less than the minimum; 12% who only pay the minimum and 31% who repay more than the minimum but not the full amount.
  • 26% credit card users have had their limit raised without asking for it in the last year (this rises to 35% of people who don’t repay their balance in full)
  • 14% credit card users have incurred a fee for missed, bounced or late repayments in last year – this rises to 25% for people who don’t repay their balance in full.
  • 34% of credit card users don’t know their APR interest rate.

In the last year credit card users have:

  •  17% regretted buying things on their credit card (30% of people who don’t repay their balance in full.)
  • 4% have bought things they knew they couldn’t afford to repay (this rises to 8% for people who don’t repay their balance in full.)
  • 3% have bought things it turned out they couldn’t afford to repay (this rises to 7% for people who don’t repay their balance in full.)
Populus, on behalf of Which?, interviewed a representative sample of 4,152 GB adults online between 10-12 January 2014.  The sample of credit card users was 2,388. Data were weighted to be demographically representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules. 
3. For more details on consumer spending, debt and attitude to the economy go to the Which? Consumer Insight Tracker.

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