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Individuals struggling with long-term credit card debts have been urged not to ignore letters that encourage them to make larger repayments.
New rules set by the FCA, which regulates firms that provide financial products such as credit cards, mean that some ‘persistent debt’ customers will now be receiving a second reminder, suggesting that they make larger than the minimum repayment.
If borrowers don’t act, then credit card providers could suspend the cards by March 2020.
The new rules were imposed when figures showed credit card companies made large profits on customers in persistent debt.
A credit card user is said to be in persistent debt when they have paid more in interest and charges than they have repaid on the original debt over an 18-month period.
Figures showed that these borrowers were paying an average of £2.50 in interest for every £1 they repay.
The FCA rules mean that credit card providers now need to send warning letters when borrowers have been in persistent debt for 18 months and 27 months.
After three years, if customers do not repay the balance, then the provider must offer a way of repaying the balance in a reasonable period. These plans could increase minimum repayment amounts.
Credit card companies may also cut, waive or cancel interest, fees or charges from that point.
Debt charity StepChange warned that many of the letters were unclear about what could happen by next March.
Their research suggests that, so far, few people that have received these letters have made any meaningful action.
Tom Fox, Licensed Insolvency Practitioner with Umbrella Insolvency said: “Looking at StepChange’s research, we have to question what effect these letters are having. Many people in persistent credit card debt may not fully understand the situation or they may simply not have enough money to make larger repayments.
“We urge anyone that gets one of these letters to consider their position carefully and to seek the advice of a debt professional if they think they need it.”
For personalised confidential debt advice, speak to a member of our team today. Call: 0800 611 8888.