Martin Wheatley, the UK’s top financial regulator, has pointed blame at credit cards and the companies that offer them as the reason why so many Europeans have fallen into excessive depths of debt.
The chief executive of the Financial Conduct Authority (FCA), says many people who have fallen prey to the lure of credit cards now find themselves struggling to manage enormous amounts of debt with bills that never cease.
He questions why “card issuers [are] providing the means, in some cases, for the most indebted consumers to escalate their way into further debt?”
The credit card industry, in reaction to his query states it is merely providing an opportunity for responsible lending. But in many cases the customers have sued the companies with the help of fair debt lawyers.
Wheatley’s comment was an immediate follow to the FCA’s report on inquiries into the credit card market, set to start at the end of 2014, in which the focus will study and uncover how the credit card industry may be taking advantage of those already in financial distress.
The credit card industry’s response to this announcement was that spending on cards had increased, while debt on cards has decreased.
“That said, we are not complacent about the small number of customers who find that changed circumstances, such as illness or redundancy, mean they need more support with managing their debts,” said Richard Koch, the head of policy at the UK Cards Association.
The FCA says approximately nine million Britons are considered to be in extreme debt, relying on credit cards to pay for everyday essentials.
Wheatley says around one million of the UK’s 30 million cardholders only made minimum payments, making little impact on the overall debt.
“We know it’s not uncommon for the most ‘at risk households’ to hold multiple cards and revolve multiple balances month-by-month,” he said .
According to the charity, Step Change, most who visit them for help or credit counseling admit to having five or more credit cards and carry a debt averaging £13,000.
So, what’s really to blame? Bad spending habits or credit card rules that make it nearly impossible to pay back a balance?
The consumer group Which? says there are several issues that need to be investigated to get to the core of the problem. One issue is the difficulty in comparing interest rates between different credit cards. Another is the ambiguous information surrounding how charges and penalties are calculated and added to a bill.
“Too many credit cards appear to be designed to catch customers out,” said Richard Lloyd, the executive director of Which?
“The FCA should investigate how lenders can help put consumers in control by providing clearer information, stopping excessive penalties and encouraging people to shop around without it damaging their credit record.”
Excessive fees are also to blame, as many who miss payments end up paying a fee in addition to interest added over the balance owed.
In general, hidden charges and fees that are not so clear when signing up for a credit card come back to haunt and grow if not fully understood or kept contained.
The real question is whether or not the responsibility of personal debt is in the hands of the credit card companies or the consumers.