Red card shown to credit industry for encouraging customers to run up debt
Financial Conduct Authority (FCA) concerned credit cards are being marketed too aggressively
The credit card industry has been thrust back in the dock after the City watchdog announced details of a study into the £150bn market. The Financial Conduct Authority (FCA) is concerned that credit cards are being marketed too aggressively, pushing consumers to run up debts they can't afford to repay.
It pointed out that there are about 30 million cardholders who have £56.9bn of outstanding debt, although with many people holding two to three cards, the debt is spread among many fewer people. And UK consumers hold about 70% of all credit cards in Europe.
Christopher Woolard, director of policy, risk and research at the FCA, said that card-holders need to get a fair deal.
"We want to understand in more depth what drives consumers to make the choices they do and how firms develop the services they offer," he said.
Its research published in April revealed that the credit card market was not working well for some consumers with many "worn down by continual marketing".
The study, which runs until January, will examine how easy it is to shop around and understand terms and conditions.
It will also investigate whether certain groups are disadvantaged or over-borrowing and whether consumers can easily switch between card providers.
The market has moved towards attracting borrowers in with long-term 0% deals. Now you can get almost three years' worth of interest-free credit.
But research by the University of Bristol's Personal Finance Research Centre showed that interest-free deals can lure some people into spending more than they can afford. And that quickly leads to people being trapped in a spiral of debt.
Borrowing on plastic - especially as many people use several cards - can rapidly escalate to a sizable amount.
In fact, the average total credit card debt of clients of the StepChange Debt Charity is £9,047, it said.
The average person who turns to the charity has multiple plastic, with 2.7 cards.