Credit cards can be nasty things. They might be of some use to those who want a painless way to borrow money for the very short term (ie those who can pay it back within a month or two and pay little or no interest on it). But for almost everyone else they are a lousy way to spend.
Rates are high; the lenders are known for their tricky marketing techniques; and, of course, their “friction free” nature encourages overspending. I’ve written about this before, but this article from the New York Times adds a little extra grist to the mill. In one experiment, those who were told they could pay with a credit card showed themselves prepared to pay double the amount for products than those who had to pay in cash.
The result is, as ever, too many people in too much debt: some 750,000 people in the UK have, for example, only paid the minimum on their card for three years in a row. This is no great secret, so it is no surprise that the FCA has done a full review of the credit card market and come up with a list of recommendations to make things better.
The results are interesting. The FCA likes that the market is competitive – and that lots of consumers appear to understand it pretty well. It doesn’t like that around two million people are in arrears or in default on their cards, or that 9% of accounts will take more than ten years to be paid off. So they have come with a list of measures they feel the credit card companies might take to help debtors to help themselves.
They want customers to be informed before they hit penalty levels of borrowing; to get a reminder when their interest-free period is coming to an end; to be able to set their monthly payment dates (just after they get their salary, for example); to be encouraged one way or another not to “anchor’ to the minimum payment amount; to have more control over their credit limits (the one on my card was doubled a few months ago – I had to opt out of the rise rather than in to it); and to be contacted early if it looks like they are getting into trouble. That sort of thing.
I have no problem with anything on this list, and I don’t suppose anyone else will either. The totally bemusing thing is that credit-card providers are actually having to be told that it is good practice to let people know when their interest rate is about to go from 0% to 15%, or when they are on the verge of trying to spend over their limit or even to prevent people from spending more than their limit!
I have told you before that I am constantly asked by financial providers what they can do to make themselves be more trusted. “Be more trustworthy”, I say. It doesn’t look like it’s going that well.