Credit card competition working fairly well but concern for customers in long-term debt

The Financial Conduct Authority (FCA) has published its interim report into the credit card market, including its early thinking into potential remedies. The FCA found that competition is working fairly well for most consumers.

However, the FCA is concerned about the scale of potentially problematic debt for consumers who are just above default levels, and the incentives for firms to manage this. The FCA also wants to see better information for those shopping around.

Christopher Woolard, Director of Strategy and Competition at the FCA, said:

This is a really important market in the UK. Around 60 per cent of adults have at least one credit card, and there is an estimated £61 billion in outstanding balances. 

Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better.”

The FCA found that around 6.9 per cent of cardholders (about two million people) are in arrears or have defaulted. They estimate a further two 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.

The FCA's interim findings show: 

  • Firms compete strongly for custom on some features, offer a range of products to meet consumers’ needs and there have been new entrants in the market in recent years.
  • Consumers shop around, switch and value the flexibility offered by credit cards.
  • The FCA found that firms were not targeting particular groups of consumers to cross-subsidise other groups.
  • Consumers in default are extremely unprofitable and firms are active in contacting consumers who miss payments, 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 help these customers.

The FCA has identified a range of potential remedies to make the market work better for consumers.

In relation to shopping around and switching, this includes:

  • Measures to help consumers find the best deal include enabling better access by consumers to their transaction data, boosting the role of comparison sites; and
  • 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, this includes:

  • Measures to give consumers more control over credit limits and utilisation.
  • Measures to encourage consumers to pay off debt quicker when they can afford to.
  • Firms do more to identify earlier those consumers who may be struggling to repay and take action to help them manage their repayments.

The FCA is seeking feedback on how best to take forward its proposals and interested parties can share their views by contacting by Friday 8 January.

The FCA is tweeting highlights from the credit card market study interim report via @TheFCA.

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Notes to editors

  1. Read the full Credit card market study: interim findings.
  2. On 7 April 2014, the FCA published research on the credit card market.
  3. Market studies enable the FCA to take a holistic look at competition in a market, assessing how consumers and firms behave and interact.
  4. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  6. Find out more information about the FCA