The Financial Conduct Authority (FCA) has written to credit card firms telling them to review their approach to borrowers stuck in spiralling debt.

FCA has advised that firms either reduce or waive interest and other charges in order to help struggling customers.

The British regulator has outlined concern that firms may cancel or suspend credit cards for everone in persistent debt, including those willing to come to an agreement.

In addition, FCA also argues customers may not respond to letters from their credit card provider. Therefore, firms must encourage customers to speak to them to discuss potential repayment arrangements.

Jonathan Davidson, Executive Director of Supervision for Retail and Authorisations at the FCA, said: “Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly. If a customer cannot afford the firm’s proposals for how to do this, the firm must offer forbearance, potentially including reducing, waiving or cancelling any interest, fees or charges.

“My advice to consumers is don’t bury your head in the sand. If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them. If we find firms aren’t offering their customers the appropriate level of help, we will not hesitate to take action.”

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Davidson has estimated that if firms take the correct approach, it could save customers up to £1.3bn  a year in lower interest charges.

Putting robust systems in place

Speaking on the issue, Steve Murphy, financial services risk and regulation director, said: “The FCA’s Dear CEO letter this morning makes clear its expectation regarding firms’ application of persistent credit card rules made in March 2018.

“This follows a review of approaches taken by a number of firms’ 36 month persistent debt (PD36) strategies and readiness. The overall aim of the FCA is to help customers repay credit card debt more quickly in a way that does not adversely affect their financial situation.

“Firms should ensure they have strategies in place that allow the sustainable repayment of debt, but which remain suitably flexible to shape to the needs of individual customers. They should also exercise a degree of patience when dealing with disengaged customers, offering more support and forbearance as opposed to automatically resorting to card suspension.

“Firms must be operationally ready for customers who approach the 36-month mark. This includes having appropriate and robust systems in place, as well as creating more engaging communications. Bearing in mind the majority of customers in debt could be vulnerable, getting consumer engagement right is critical and may be the most challenging aspect.

“Today, customers need to be seen as more than simply ‘a number’. Firms must deliver empathetic, relatable consumer interactions and be creative in the way communications are formed to help drive engagement.”