Consumer credit cards: FCA questions whether we are getting a fair deal

16 April 2014

Martin Wheatley, Chief Executive of the FCA, speaking last week at the Credit Today Credit Summit, announced that the FCA would be launching a full-scale competition review into the UK's £150bn credit card market before the end of 2014.

Personal borrowing is at an all time high in the UK with an estimated 30 million Britons owning a credit card and, in the last year alone, gross spending on those cards stood at £150bn. This is a sector which has ballooned in size and reach over the last 50 years, from a relatively conservative attitude towards lending to the position we are in now where 70% of European credit cards are in the UK.

The FCA's approach

Having taken over regulation of consumer credit on 1 April and almost immediately confirming that it will carry out a market study into consumer credit cards, the FCA has recognised the need for strong regulation given the immense reach that credit providers have.  While the vast majority of credit card holders borrow sensibly, and within their means, there are a growing number of households who rely on revolving credit in order to get by and it is this pocket of vulnerable consumers over which the FCA has the most concern.

It is estimated that over one million cardholders (of the 30 million in the UK) make minimum payments for 12 consecutive months or more, highlighting the issue of 'survival borrowers' who will continue to revolve credit from card to card.  In fact, the Centre of Social Justice released a report last year which indicated that around half of UK homes in the lowest income bracket spend over a quarter of their income on debt repayment.

With those figures likely to be only a fraction of the true extent of the problem, it is little wonder that the FCA has made the announcement that their "immediate to make sure all those providers of credit as well as satellite services like credit broking, debt management and debt advice, have sustainable and well-controlled business models, supported by a culture that is based on 'doing the right thing' for customers".  In fact, throughout the speech given by Martin Wheatley, there are frequent references made to the need for credit firms to be sensitive to the needs of customers and to adopt an overriding attitude of protection of consumers, which may have been lacking in the market up to this point.

As with most competition market studies, this is likely to be a lengthy process, involving the credit providers, and there is unlikely to be any revolution in the short term.  However, it seems that there is to be a real push towards improving not just competition for customers in terms of the choices available but also the protection offered to the most vulnerable consumers.  Credit cards are readily available from a whole host of providers, with different rates and credit limits, but with one in five consumers not understanding whether a low or high APR represents the best value, there seems likely to be an increase in the levels of intervention by the regulator.

The FCA's objective

The objective for the FCA's regulation of this sector is to achieve "a non-zero sum game", a wonderfully vague concept, the gist of which is that there does not have to be a 'winner' and a 'loser'. According to the FCA, there ought in fact to be a market in which both providers and consumers benefit from increased competition and a more protective attitude, "where all sides benefit: The consumer credit market from greater stability, so less risk from outliers in the industry who threaten the large majority; The regulator from a more positive, long-run relationship with firms; And consumers from improved outcomes."


While any concrete measures to achieve this balance in the consumer credit card sector are, according to the FCA's Business Plan, around 1.5 years away, credit providers are likely to have to adapt to a new regulatory regime, and more observant regulator, going forward.

Internal reviews, investigations and enforcement action will likely follow too.

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