Executive summary

Back to top

Executive summary

Consumer credit market infographic

Download PDF version of infographic

Credit card consumers infographic

Download PDF version of infographic

 

Interim findings

We found that in most of the market, competition is working fairly well for consumers. Consumers value the flexibility offered by credit cards and use them in different ways, for example making secure payments and collecting rewards, spreading the costs of purchases or as an emergency credit facility, for paying off other debt, or for building credit history.

Firms compete strongly for custom on some features - not only for new consumers but also for ‘back book’ consumers (existing borrowers with balances). However, competition is focused primarily on introductory promotional offers and rewards, with less competitive pressure on interest rates outside promotional offers and other fees and charges. We want to ensure industry is clear about fees and charges, so consumers can focus on the overall cost of using credit cards.

The market is moderately concentrated but there has been new entry in recent years.  However, higher credit risk consumers have a more limited choice of products and providers than lower risk consumers. The main barriers to serving this segment, other than commercial viability, appear to be the reputational and regulatory risks associated with higher risk and higher cost lending.

Our evidence suggests many consumers are open to switching – each year around 14% of consumers with a credit card take out a new one - and firms do not consider a lack of switching to be a significant barrier to entry or expansion. However some consumers with higher risk profiles are less willing to shop around for fear of affecting their credit record, and we are proposing remedies to address this.

All lending activity carries default risk. That said, we are concerned about the scale of potentially problematic debt in this market including for consumers who are just above the default level. We found that around 6.9% of cardholders (about 2 million people) are in arrears or have defaulted. We estimate a further 2 million people have persistent levels of debt that some may be struggling to repay, and that a further 1.6 million people are repeatedly making minimum payments on their credit card debt.  8.9% of credit cards active in January 2015 (5.1 million accounts) will – on current repayment patterns and assuming no further borrowing - take more than 10 years to pay off their balance.

Consumers in default are extremely unprofitable and firms are active in contacting consumers who miss payments and triggering forbearance at this point. However, consumers with persistent levels of debt or who make minimum payments are profitable. Firms therefore have fewer incentives to address this and we found that, most firms do not routinely intervene to address this behaviour. We consider that there is more firms could do to help those with persistently high credit card debt to reduce debt burdens before they become problematic, and to prompt those repeatedly making minimum payments to repay quicker when they are able to. We believe the incentives for firms in this market can be realigned in this area.

0% balance transfer offers are a significant feature of this market (accounting for a quarter of outstanding balances) – they are popular with consumers and provide an important focus for competition between providers. Nonetheless, the increase in the number and length of offers has raised some concern: first, whether consumers understand the product and the fees they will incur; and second, whether balances that are currently interest-free are storing up future debt problems.

We expect firms to be clear about the fees associated with such deals, and are keen to find ways to help consumers assess and compare the total cost of credit on such deals. As regards future debt problems, we found that these deals are generally not available to those with higher credit risk, and that in current economic conditions the stock of lending appears affordable. As with any credit product, however, concerns would increase should economic conditions change.

Interim proposals on remedies

We identified a range of potential remedies to make the market work better for consumers. We are now keen to engage with stakeholders to take forward a package that addresses the issues we have found. Measures to help consumers find the best deal include enabling better access by consumers to their transaction data, boosting the role of comparison sites, ensuring consumers can search the market without damaging their credit score, and prompting consumers when they are nearing the end of a promotional period.

To reduce problematic credit card debt we propose measures to give consumers more control over credit limits and utilisation, and measures to encourage consumers to pay off debt quicker when they can afford to. We also propose that firms do more to identify earlier those consumers who may be struggling to repay and take action to help them manage their repayments. We want to ensure the incentives for firms in this sector align with good consumer outcomes. 

We consider that this package of remedies could have significant impact in addressing the concerns we identified. We are interested to hear views on these proposals and how we can best take them forward. 

 

In November 2014, we launched a market study into credit cards, having taken over regulation of consumer credit in April 2014. We wanted to build a sound understanding of the market and assess whether it was working well in the interest of consumers.

Consumers value the flexibility and convenience of credit cards and they are an extremely popular product. Around 60% of UK adults hold at least one credit card. There are currently about 30 million credit cardholders in the UK, with an estimated £61 billion of outstanding credit card balances – or an average of £2,000 per person.1 This is one of the largest areas of unsecured lending within our regulatory remit, and represents 32.5% of total unsecured personal borrowing in the UK.2

This report presents our interim findings of our market study. In it we set out our views based on our work to date on how competition works in this market and on outcomes for consumers. We also outline some potential remedies that might address some of our findings.

We investigated three areas in the market study:

  • The extent to which consumers drive effective competition through shopping around and switching
  • How firms recover their costs across different cardholder groups and the impact of this on the market.
  • The extent of unaffordable credit card debt; in particular whether some consumers are over-borrowing or under-repaying on their balances and whether firms have incentives to provide unaffordable credit that leads to consumer detriment.

The extent to which consumers drive effective competition through shopping around and switching

  • We found that firms compete strongly for custom and there are a range of promotional offers available. However, we found less competitive pressure on interest rates outside of promotional offers and on other fees and charges and consumers do not always focus on such costs.
  • There has been some market entry – five new firms have begun offering credit cards in recent years – and they have been able to gain market share. We found fewer firms were willing to serve higher risk consumers and there was less choice for these consumers.
  • Consumers are engaged and willing to switch with over half claiming to shop around when choosing their credit card and around 14% of existing consumers take out a new credit card a year. Most consumers do not perceive material barriers to switching, and firms do not consider a lack of switching to be a significant barrier to entry or expansion.

The credit card market offers a range of products to meet varied consumer needs. Consumers value the flexibility offered by credit cards and use them in different ways, for example paying off other debt (balance transfer cards), borrowing (0% purchase cards and standard low-rate cards), everyday spending (rewards cards), and building credit history (low and grow cards).

Attractive introductory promotional offers are a common feature. Along with an increasing prevalence of long term low rate products, they provide strong incentives for consumers to switch. Evidence suggests half of those taking out a credit card shop around first, and that around 14% of existing credit cardholders take out a new credit card in a year. Most consumers do not perceive material barriers to switching, and firms do not consider a lack of switching to be a significant barrier to entry or expansion.

However, we find competition is focused on a small number of features such as promotional offers and rewards, and when choosing a credit card consumers often disregard important features, such as long-term interest rates or fees and charges (e.g. balance transfer fees), that can add significantly to costs. We also found that some consumers end up not using their credit cards in the way they expected when they took them out, adding to the complexity of finding the best deal.

Price comparison websites (PCWs) play an important role in this market. For consumers they can help navigate complex products and reduce search costs by comparing products in one place and for firms they can help attract consumers. We found that of those consumers who shopped around, 66% used one or more PCW and found them useful. However, we found a number of limitations to the effectiveness of PCWs in helping consumers navigate product complexity - for example, ranking criteria may not be sufficiently capable of reflecting the individual’s credit card usage pattern. We also found that PCWs on the whole did not make clear how they were funded and whether they compared the whole of the market.

On the supply side, the market is moderately concentrated3 and there are material costs of entry, such as significant sunk costs and a high level of expertise and data. However, these do not appear insurmountable - five firms have begun issuing their own credit cards in recent years (Metro Bank, Sainsbury’s Bank, Tesco Bank, TSB and Virgin Money) with some of these firms originally entering the market through joint ventures or partnerships with existing credit card issuers.

We also found that higher credit risk consumers have a more limited choice of products and providers than low risk consumers.4 The main barriers to serving this segment, other than commercial viability, appear to be the reputational and regulatory risks associated with higher risk and higher cost lending. We also found higher credit risk consumers have concerns about whether other firms would offer them a credit card and the impact of multiple applications on their credit score, which discourages some from shopping around.

We looked at whether consumers were in fact choosing the best deal, in particular whether those paying interest on purchases could have benefitted from choosing a lower cost card. Most accounts transact a lot and borrow a little, so the cost of borrowing for these is small. 

However, for those who borrow more, the potential savings from choosing a cheaper credit card are clear and significant. For example, 8% of accounts in our sample incurred over £100 interest on purchases a year in the first two years after taking out their credit card. We estimate that consumers on these accounts pay on average £225 a year in interest on purchases of which they could save over £150 by choosing a cheaper credit card. This suggests that there is more that could be done to help consumers navigate the complexity of offers in this market and increase borrowers’ focus on all the costs. We return to this below in our discussion on remedies.

Competitive pressure on conditional fees and charges such as default fees, foreign exchange fees or cash advance fees is limited, as consumers pay little attention to these. Business models are not predicated on these charges generating significant revenue (our analysis shows these charges represent around 5% to 12% of overall firm revenue.) Nonetheless we have found concerning practices by some firms, for example charging default fees several times per default event. This is not widespread across the market and we are pursuing these concerns with the individual firms in question.

How firms recover their costs across different cardholder groups and the impact of this on the market

  • We found that firms were not targeting particular groups of consumers in order to cross-subsidise others. Where cross-subsidisation did occur we did not find that it materially affected competition in the credit card market.
  • The Interchange Fee Regulation is likely to reduce firm income between 5% and 10% but we do not expect this to result in significant changes to credit card products.

As noted in our Terms of Reference,5 stakeholders suggested to us that there is considerable cross-subsidisation in the credit card market and our study sought to establish whether this was the case and the effect it might have on competition. We therefore assessed whether the way firms recover their costs across consumer groups has an anticompetitive effect on the market (e.g. by creating barriers to entry or expansion), or results in certain groups being unduly disadvantaged.

We found firms typically design products to at least break even over a five-year period for all behavioural types targeted – in other words we did not find firms targeting particular groups or behavioural types with a view to cross-subsidising others.  Furthermore, we did not find evidence that cross-subsidies materially restrict entry or expansion in the market – firms’ responses to our market questionnaire did not cite the lack of a captive ‘back book’ of consumers as a prohibitive barrier to entry, given consumers’ willingness to switch.

In response to stakeholder concerns, we considered specifically whether there was a cross-subsidy from ‘revolvers’ (those who make use of the revolving credit facility) to ‘transactors’ (those who primarily use the card for payment).  We found that products targeting transactors were profitable or breaking even – in particular, products designed to encourage high levels of spending can make significant profits from transactor behaviour. We did not find evidence that firms need to convert transactors into revolvers over time to break even on such accounts. That said, firms typically make higher profits from revolvers than transactors and, as noted above, we believe there is more that can be done to address borrowing costs.

We also considered how the cap on Interchange Fees would affect firms’ profitability and their product design and strategy.  Firms’ estimates of the reduction in income from the cap averaged 5% to 10%. Firms with proportionally higher levels of transacting type consumers will face proportionally bigger losses in income. Firms say they will respond by offering more products with a small or increased annual fee or diluting rewards schemes. These developments do not give us direct cause for concern where appropriately communicated to consumers (whereas we would be concerned, for example, if the loss of interchange revenue led to increases in conditional charges which are less susceptible to competitive pressures). However, in a market where there are competitive pressures on firms we would expect to see continued attempts to gain business and minimise the impact of such changes on consumers. We will consider any changes to firms’ response to the cap on Interchange Fees as we progress this study.

In light of our findings we do not propose to take any further action in relation to how firms recover costs or cross-subsidisation.

The extent of unaffordable credit card debt

  • 6.9% of cardholders (around 2 million) were in arrears or default – we found that firms take steps to avoid lending to consumers who cannot ultimately repay and cardholders who default are not profitable. We found firms were generally proactive in contacting consumers when they began to miss payments.
  • A further 6.6% of cardholders (around 2 million) have persistent high levels of credit card debt which they may be struggling to repay – these consumers are profitable for firms and there was little evidence to suggest firms intervene to help consumers address persistent debt burdens unless they miss payments.
  • A further 5.2% of cardholders (around 1.6 million) make systematic minimum repayments – these consumers make slow inroads in their debt repayment but are not necessarily struggling.  Again, these consumers are profitable for firms.  
  • On balance transfers, we found that almost half of accounts repaid the full amount of the balance transferred by the end of the promotional period. This increased to 60% three months later and 71% six months later. We considered that balance transfers do not appear to be materially contributing to problem credit card debt; however, if wider economic conditions were to change significantly then the proportion of consumers unable to pay is likely to increase.

A major difference between credit cards and many other credit products is that both the amount borrowed and the repayment schedules are flexible. Subject to meeting the minimum repayment, the consumer can decide how much to repay each month. This allows consumers to opt for a very low repayment rate which may be necessary to tide them over in the short term. Over a longer period, however, lower monthly payments imply a longer time to repay and, in turn, a higher total cost. This can have implications for the wider financial situation, including their ability to meet other commitments including basic household expenditure.

There is no standard definition of problem debt in the credit card market. We used a series of indicators to assess the scale and nature of debt that is potentially problematic. These are:

  • Defaults and arrears
  • Credit limit utilisation
  • Systematic minimum payment behaviour
  • Debt service costs
  • Time to repay

We found that of the 31 million active consumers in the last year, 1.9% (600,000 people) have been in default or have been at least six months in arrears, and 4.9% (1.5 million people) have missed three or more repayments and are either in or have been in arrears. These consumers are more prevalent amongst those with high credit risk and in the more deprived demographic segments.

We looked at credit limit utilisation, since persistent high utilisation can also be an indicator of debt problems. We found that 6.6% (2.1 million people) of active consumers maintained a credit limit utilisation of on average 90% or more over the year while incurring interest. This was present across all credit risk groups and demographic segments but was more prevalent in higher risk consumer segments.

We also looked at systematic minimum payment. We recognise that this is a weaker indicator of problem debt and that this group includes consumers who are not struggling. Nonetheless, it indicates that consumers are taking longer to repay their credit card debt (with associated costs) than perhaps they need to. We found that 5.2% (1.6 million people) of active consumers in the last year repeatedly made only minimum payments while incurring interest.6 This repayment behaviour also appears across all credit risk groups and demographic segments.7

Indicators of potential problem credit card debt 

Indicators of potential problem credit card debt

Lastly, we looked at the total debt servicing costs consumers pay relative to the amount borrowed, and at the length of time they take to pay off credit card debt. We found:

  • 1% of credit cards opened after January 2010 (360,000 accounts) paid debt service costs over five years exceeding the amount borrowed. Those in arrears or with persistent levels of debt incurred the highest cost.
  • 8.9% of credit cards active in January 2015 (5.1 million accounts) will – on current repayment patterns and assuming no further borrowing - take more than 10 years to pay off their balance. Again, those in arrears or with persistent levels of debt take the longest to repay.

We therefore consider that we have identified a mixture of:

  • People struggling under a debt burden that has become problematic; and
  • People paying more in debt service cost and taking longer to pay off debt than they need to. While these people may not regard their debt as problematic, it is more expensive than it needs to be and there is some risk that it becomes problematic in the future.

Our view at this stage is:

  • Some bad debt is a feature of all credit activity - borrowing is never risk-free, as ability to repay is affected by life events (e.g. losing a job). Both borrowers and lenders take a degree of risk entering into any kind of credit agreement.
  • Behavioural biases may lead to over-borrowing and under-repayment - there are known patterns of consumer behaviour that will tend to lead to over-borrowing and under-repayment. These include optimism bias (consumers typically over-estimate their ability to repay), framing effects (consumers perceive costs expressed in % terms as being smaller than the same costs expressed in £), and the anchoring effect of minimum repayment amounts (consumers will tend to pay what their lender suggests).

We wanted to understand whether firms had a commercial incentive to respond to these biases by over-lending or under-collecting. We therefore examined whether the types of lending identified were profitable.

On incentives, we found that firms make losses on defaulting consumers, so have strong incentives to avoid lending that has this outcome. However, we found that consumers with systematic minimum payment behaviour or high levels of utilisation are profitable, suggesting that firms have little incentive to screen these consumers out or to intervene when they identify such behaviour.

We looked at how firms assess credit risk and affordability. Both are elements of creditworthiness as defined in our rules: credit risk is an assessment of the likelihood a consumer will default, whereas affordability is an assessment of how easily a consumer can meet credit card repayments at a given credit limit. We found that firms invest significant effort in assessing credit risk, i.e. the likelihood that a consumer will default. Firms tend to conduct separate assessments of affordability, and these are noticeably less sophisticated. The FCA is undertaking wider work on its expectations as regards creditworthiness across consumer credit markets and we will take forward our thinking through that process.8

We also looked at forbearance. Firms have a range of forbearance procedures, designed to support consumers struggling with repayments, including reduced or suspended interest payments and charges. They are generally proactive in contacting consumers to initiate these procedures when consumers begin to miss payments. However we found little evidence of firms intervening with consumers currently meeting minimum repayments but exhibiting other signs of potentially problematic debt (e.g. maintaining a high credit limit utilisation). We believe there is more that could be done to intervene earlier with consumers exhibiting signs of potentially problematic debt, and discuss possible measures below.

We also considered balance transfers. The total amount of money held in balance transfers was £14bn (roughly a quarter of outstanding balances) at the end of 2014 and 22% of new accounts in 2014 involved a balance transfer. We considered whether balance transfer products were storing up future debt problems. These problems may arise once current promotional offers expire if consumers are then unable to service the debt or enter into another promotional balance transfer deal. We found that the terms offered to consumers varied by their perceived credit risk and that consumers with a perceived lower credit risk were typically offered the most favourable terms, such as a longer 0% introductory offer period. Consumers with a perceived higher risk tended not to be accepted for balance transfer deals so they are unlikely to comprise a significant proportion of outstanding balances.

We estimate that almost half of accounts repaid the full amount of the balance transferred by the end of the promotional period. This increased to 60% three months later and 71% six months later. Therefore, balance transfers do not currently appear to be materially contributing to problem credit card debt. However, if wider economic conditions were to change significantly then, as with any credit product, the proportion of consumers unable to pay is likely to increase.

Our view at this stage is:

  • Firms make losses on consumers that default so they have a strong incentive not to lend to these consumers. However, firms have fewer incentives to avoid lending to consumers who have persistent debt or make systematic minimum repayments because they are profitable to the firm.
  • Firms have a range of forbearance procedures to help consumers clearly struggling to repay but could do more to intervene earlier and assist consumers who show signs of potentially struggling.

Interim proposals on remedies

Having identified a number of concerns (outlined above) we considered what action might address them. As set out in our market study guidance 9, this could range from new rules (including changes to or withdrawal of existing rules) to supervision or enforcement actions and proposing enhanced industry self-regulation.

In this section we outline our early thinking on what actions might help the market work better for consumers in the two areas where we have identified concerns: ‘shopping around and switching’ and ’affordability and problem debt’.

The purpose of sharing our thinking at this interim stage is to engage with stakeholders on the themes identified and discuss workable solutions. The next stage will involve a more formal assessment of the effectiveness and proportionality of any potential interventions, before we present and consult upon any firm proposals (with supporting analysis) in our final report. When considering potential action we will consider the constraints from relevant EU and domestic legislation, and will take account of existing or proposed self-regulatory codes or guidance.

We are keen to engage with stakeholders on ways of taking our work forward, having regard to relevant initiatives in this or other areas and our wider work on smarter consumer communications.10

Shopping around and switching

As explained above, the market is complex, often for good reason, given the flexibility of the product and the fact that usage patterns may vary. Nonetheless, this makes it difficult for consumers to compare offers and identify the best one for them. We believe there is scope to boost the role of third party intermediaries in cutting through the complexity consumers face when seeking the best deal. In particular, we consider that the market could be improved in the following ways:

  • With the consent of consumers, open access to credit card usage data to other market participants: Similar approaches are already underway in relation to personal current accounts, for example, the Government is currently trialling the Midata initiative11 and there is increasing use of Application Programming Interfaces (APIs) in the banking area.12 We could look to build on these to develop comparable solutions for the credit card sector. The aim would be to enable consumers to consent to third parties (e.g. price comparison websites, or competing credit card providers) accessing their transaction history data, to be able to provide bespoke quotations linked to the consumer’s pattern of spending and repayment.
  • Clearer standards for price comparison websites (PCWs): We have recently consulted on proposed additional standards for PCWs comparing high-cost short-term credit (HCSTC) products.13 Taking into account the responses we receive to this consultation, we will consider whether, and if so how, similar standards might be introduced in relation to credit cards.

We expect that the above measures would enhance transparency about credit card products and their features, such as balance transfer fees, that will enable consumers to more easily choose the best deals.

We found promotional offers were common in this market, and were an important spur for switching. Nonetheless, consumers are not always aware of when their promotional period will end or the benefits of repaying their debt or shopping around. We therefore consider that the market could be improved by:

  • Providing timely information to prompt consumers to repay their credit card debt or shop around once promotional offers have expired: We can see benefit in firms providing pro-active warnings to consumers (e.g. through text alerts, mobile applications, and/or emails) reminding them when their promotional offer is due to expire and the rates they will pay on any balances outstanding on their account at that point.
  • Promoting and facilitating the use of quotation searches: We found that some consumers with higher credit risk are dissuaded from shopping around due to worries about the impact of multiple application searches on their credit score. We are already considering measures to promote and facilitate the use of quotation searches across all credit sectors14 and the evidence from this market study will feed into this work.

Other concerns around conditional charges and other aspects of terms and conditions were firm-specific rather than market-wide. Given that the market overall is working well we will pursue these concerns with the firms in question.

Affordability and problem debt

As explained above, we believe there is scope for the market to work better for consumers struggling with credit card debt or paying significant debt servicing costs. The FCA is reviewing its rules on creditworthiness (including affordability) across consumer credit, and our findings in credit cards will feed into this.

We outline below possible steps that could (i) reduce over-borrowing and encourage prompt repayment, thereby reducing the amount of interest and charges that consumers pay as a result of how they use their credit cards; and (ii) encourage earlier firm intervention to identify and help consumers with potentially problematic debt.

In relation to under-repayment, we consider that the following measures could make the market work better for consumers:

  • Disclosures to encourage faster repayment: Firms  could  disclose  in  each  monthly statement (i) how long it will take the consumer to repay the current balance and/or (ii) the saving in total cost from repaying more than the minimum and/or (iii) the repayment amount needed to pay off the balance within, say, one year. We are keen to hear from firms that have already trialled or are interested in trialling such an approach.
  • Provide a wider range of pre-set repayment options: Firms could offer different pre-set payment options for regular automated payments, for example, reflecting target time to repay. For online payment mechanisms, firms could remove the minimum amount from the range of pre-set options but with a default setting to ensure that at least the minimum is repaid.

A number of stakeholders have asked us to consider simply increasing the minimum repayment across the board, i.e. mandating that consumers pay a much higher amount than currently required by our rules. For some consumers, this could have a significant impact by reducing the repayment flexibility from which many consumers benefit. However, we would be interested to hear further views from stakeholders.

In relation to over-borrowing, we consider that the following measures could make the market work better for consumers:

  • Providing timely information to prompt consumers to take into account how much they are borrowing: We found some consumers spend more on their credit cards than they expected to. Some firms already provide proactive warnings to consumers (through text alerts, mobile applications, and/or email) reminding them if they are approaching their credit limit or have reached say half their credit limit. We are keen to understand the effectiveness of such warnings and explore the scope for extending this practice across the market.
  • Giving consumers more control during the lifetime of the credit card on variations, such as an opt-in for credit limit increases: Firms are already required to enable consumers to opt out of proposed increases in the credit limit, both individually and across the board. However, there may be merit in requiring consumers to actively opt in to an increase, so they are more in control, and to have to opt in to permitting ‘over the limit’ transactions. Consumers could also benefit from being able to choose the same payment due date each month, to align with timing of receipt of regular income.

In relation to potentially problematic debt, we consider the following measure could make the market work better for consumers:

  • Earlier forbearance: We think firms could identify and address potentially problematic debt (e.g. persistent debt or systematic minimum repayment) sooner, before payments are missed and the consumer accumulates interest and charges that could have been avoided. Firms are already required to monitor for signs that consumers may be struggling to repay, but could do more to respond in such cases, for example by contacting the consumer to establish whether they are in financial difficulties and if so, whether to exercise forbearance. In particular we want to explore how to rebalance the incentives for firms in the credit card market to ensure that lower cost alternative credit is offered as a matter of course to those who appear to be building up problem debt after a standard period, for example 12 months.

    We recognise the challenges firms face when interacting with consumers in financial difficulties and believe it may be necessary to adopt a stepped approach for intervention. This could range from reminders, through to signposting to debt advice and on to potentially re-structuring the repayment arrangements. We invite views on (i) how those consumers struggling with debt could be identified earlier, (ii) what, if any, stepped approach to intervention could be adopted and (iii) how the interaction at that stage could best be managed.

There are more radical possible approaches to tackling problem debt. Consumer groups have suggested a cap on the total cost of credit cards, similar to the cap implemented in the HCSTC sector where we have capped the total cost at twice the amount borrowed. At this stage we are not minded to pursue this approach as we consider that the package of remedies we have outlined are more likely to address the concerns identified and work across a highly varied market in terms of consumer behaviours. However we have not ruled out further work if we find that we cannot develop a package of measures that rebalances the incentives for firms. We would be interested to hear views from stakeholders on this point.

Invitation for responses

We are publishing this interim report to give all interested parties an opportunity to comment on our emerging thinking and analysis. We hope this will help assure the robustness of our findings and promote continued constructive engagement between the FCA, the firms, trade associations, consumer bodies and other interested parties.

Since launching the study we have collected a significant amount of evidence from credit card firms, and have met a number of market participants, trade bodies and consumer groups. We are grateful to all for their engagement.

In the report we set out our initial observations on how competition functions in the credit card market and highlight areas of potential concern. We also set out initial thinking on potential remedies and would welcome views from industry and consumer groups on these and how they might be implemented.

Please send us your views by 8 January 2016 to [email protected].


1. UK Cards, According to UK Cards, at the end of Q4 2014 outstanding balances stood at £61.1 billion. This total can be split into interest-bearing and non-interest-bearing. Around 42% of all outstanding balances in Q4 2014 were non-interest bearing

2. UK Cards, UK Card Payments (2015) publication

3. The estimates of market concentration use the Herfindahl-Hirschman Index (HHI) measure of market concentration. This is calculated by adding together the squared values of the percentage market shares of all firms in the market. It therefore takes account of the different sizes of market participants as well as their number. The Office of Fair Trading’s Merger Assessment Guidelines (September 2010, OFT1254) indicate that a market with an HHI exceeding 1,000 may be regarded as concentrated. The HHI scores for the credit card market indicate that it is slightly above that threshold with an HHI in 2014 of 1171 based on number of accounts and 1496 based on value of borrowing.

4. However, one firm has recently launched a new credit card targeted at this segment.

5. FCA, Credit card market study terms of reference (2014) MS14/6.1.

6. Consumers that have made 9 or more minimum repayments in the last year while also incurring interest (i.e. excluding consumers on 0% interest deals).

7. In the figures we have reported the consumers worst state. For example, if a consumer had a high and persistent credit limit utilisation rate and had been charged off, they would be included in the 1.9% of those consumers identified as charged off or have been in at least six months arrears, rather than accounted for in the 6.6% of consumers identified as having persistently high utilisation rates.

8. FCA, Business Plan (2015/16)

9. FCA, Market Studies and Market Investigation Guidance (2015)

10. FCA, Smarter Effective Communications (2015)

11. Gov.UK, Is your bank giving you the best deal? Find out using new online comparison tool (2015)

12. HM Treasury, Call for evidence on data sharing and open data in banking (2015)

13. CP15/33: Consumer credit: proposals in response to the CMA’s recommendations on high-cost short-term credit

14. FCA, Business Plan (2015/16)