Credit card customers of Lloyds, Halifax and Bank of Scotland could see their cards cancelled from the end of next month if they have been in “persistent debt” and have not reduced their balance.
The lenders, which are all part of Lloyds Banking Group, sent letters this week laying out how they would deal with customers who have been in the red on credit cards for 36 months.
In some cases, customers deemed to have problem debt may no longer be able to use their cards. RBS and NatWest customers have received similar warnings.
All banks are currently responding to rule changes by the City watchdog designed to help those who are paying more in interest and charges than the debt they initially took out.
But campaigners have warned that “inconsistent” communication about the changes could leave consumers with an unexpected request to make larger payments.
The FCA introduced rules in September 2018 requiring lenders to identify customers in persistent debt for 18 months. After the initial 18-month period comes to an end – which for many people will be next month – those who have not brought down their balances could be put on to a payment plan or face more severe options.
Halifax told customers it “may cancel or suspend use of the card if we believe you have held debt on your account beyond a reasonable period, taking account of what has been repaid and the likely time it would take you to repay your balance”.
However, this is likely to be a last resort after other efforts to reduce a customer’s balance have been exhausted.
Sue Anderson, of Stepchange debt charity, said the FCA has made it clear that it does expect lenders to stop people using their cards if they cannot afford to repay their balance over a “reasonable” payback period of three to four years.
“This follows 18 months of requiring lenders to take a less prescriptive approach to get borrowers to consider paying more, and reduce the number still with persistent debt on their cards at this point.
“This is the right thing to do in terms of reducing the risk of people remaining stuck in credit card debt indefinitely — but it doesn’t make it a pleasant experience for people who don’t identify themselves with having problem debt.
“It would also be fair to say that the communications lenders have been sending over the past 18 months have been very variable, so it isn’t surprising that some people who are affected did not feel they really knew what was coming at this point.”
Stepchange is establishing a new service next month to help people receiving these letters to assess the best and most affordable approach for them.
“For some people, budget advice and some tools to help calculate repayment options may be all that’s needed to point them in the direction of a solution that works for them.
“At the other end of the spectrum there will certainly be people who are, in fact, already in problem debt without perhaps realising quite how entrenched their debt has become — and who may really benefit from full debt advice.”
Consumers reduced their credit card debt by £120m in November, but the total outstanding remains at £72.1bn.
Research published last week revealed that low-income households have racked up borrowing on loans, credit cards and other consumer debt faster than any other group since the financial crisis, leaving them over-exposed to another economic shock, according to a new study.
Much of the rise in consumer credit since the financial crash has been on high-interest products including store cards and overdrafts charging rates averaging 20 per cent, the Resolution Foundation said.
If you would like help dealing with debt, visit Stepchange for free online advice: https://www.stepchange.org/