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Credit card debt

A new set of policies and guidelines for continuing credit card debt As of September 1, 2018, all companies that offer credit card services to the consumer must adhere to the new regulations and guidelines for continuing credit card debt and previous interventions. They have been released in the Consumer Credit Reference Book (CONC) and came into effect on 1 March 2018.

Following the takeover of the regulations on credit for private customers in April 2014, the FCA started a credit card survey. EZV released its definitive results in July 2016, stressing concern about the size, scope and type of problematic credit card debt and the companies' limitations on how to encourage them to do so. EZV promised a set of corrective measures to tackle the problems highlighted in its credit card survey, aimed at giving better credit controls to customers while preserving credit card flexibilities.

The FCA as part of the corrective measures set suggested new regulations and guidelines for the handling of clients with credit card debts lasting between 18 and 36 month, as well as suggested regulations and guidelines for previous measures for clients facing possible economic problems. The PS18/4 also contains the final set of policies and guidelines for continuing credit card debt and prior actions.

However, the new regulations on perpetual debt cover only private credit card users. They do not cover commercial credit card transactions and for this reason the FCA will define a commercial credit card as one advertised exclusively for the client's use. If a client uses his credit card for commercial reasons, this bank still falls under the provisions on perpetual debt if the contract is a credit contract.

Sealed and insolvent clients, i.e. clients whose contract has been cancelled but who may opt to maintain the level of payments corresponding to the continuing indebtedness definitions, should remain subject to the continuing debt notification requesting them to make repayments more quickly. According to the new regulations, companies are obliged to supervise customers' reimbursement documents as well as other pertinent company information and to take appropriate measures if there are indications of real or possible economic problems.

The Directive sets out, for example, appropriate measures such as: considering to suspend, reduce, waive or revoke further interest, charge or fee payments; informing the client of the risks of escalation of debt; and giving nonprofit debt advisors contacts and encouragement to the client to contact them. Customers who pay the minimal amount under the terms of the contract are not in themselves a signal of possible or real difficulty.

Credit card customers are deemed to be permanently indebted if the amount they have redeemed from their credit card account in the immediately previous 18 months is less than interest, charge and fee (persistent debt). Companies are obliged to evaluate at least once a month whether a credit card client fulfils this requirement.

If a client is in persistent debt, the new regulations demand that companies take a range of escalating measures to help the client. Company's first action occurs after 18 moths, i.e. when the client fulfils the persistent debt criteria for the first year. After 27 and 36 moths further measures of the company are necessary.

Interventions after 36 moths mark the point in point in due course at which the client has fulfilled the Persistent Debt requirement for a second successive term of 18 moths. If a client is in persistent debt, the company must speak in a suitable media and in clear text: inform the client that the amount disbursed by the client in the previous 18 calendar-months had a nominal value lower than interest, duties and taxes; that raising this disbursement amount would decrease the costs of taking out a loan and the amount of money needed to pay back the remainder; contacting the client to get in touch with the company to review the client's finances and determine whether the client can raise the amount of disbursements without adversely affecting the client's finances; obtaining access to nonprofit debt counseling services and obtaining the client's address; obtaining information from non-profit debt counseling services; and contacting the client to provide the client with information on the client's finances.

No particular word format is to be used for this type of communications, and companies have the power to adapt the style and style of communications to the specific needs of each client. The entity must consider at the 27-month milestone (not sooner than 9 and not later than 10 after the 18-month milestone) the patterns of payment made by the client since the 18-month milestone and judge whether the client remains in the persistent debt at the 36-month milestone, taking into account that these refunds are deemed to be indicative of the client's refunds over the entire second 18-month term (starting from the date on which the client meets the persistent debt definition).

The entity shall replicate the 18-month communications if that analyses indicates that it is likely that the client will be in continuing debt after the end of the second successive 18-month term. If the amount payable by the Client to the Company in respect of the credit card debit balances during the 18-month subsequent immediately after the date on which the Client first meets the continuing indebtedness requirement includes a lower amount of capital than interest rates and commissions, the Company shall take appropriate measures to help the Client pay back the credit card debit balances more quickly and in a manner that does not prejudice the Client's economic condition.

Unter these conditions, the company must approach the client to tell him that raising this rate of pay would lower the costs of taking out a loan and the amount of money needed to pay back the remainder; give access to contacts of non-profit debt advisors and advise the client to get in touch with one of them; give the client an option to raise the amount of pay and ask the client to react within a certain appropriate timescale; let the client know that if the company does not get a reply within the given timescale, the company will use the card if it does not do so.

An example of the reimbursement possibilities outlined in the guidelines is the transfer of the credit card debit amount to a firm uncovered private credit or an increased amount of the credit card payment each month as part of a reimbursement schedule. It is the objective of the option that a client repays the account within a suitable time.

FCA anticipates that an "appropriate period" is usually between three and four years, except in special cases. If the client does not reply to the Company's notice or if the client acknowledges that one or more of the suggested refund schemes are durable but declares that he will not make the enhanced payment, the Company must discontinue or revoke the use of the credit card by the client.

If a client acknowledges that the redemption option is untenable, or if the pattern of actual redemption under the redemption schedule indicates that the client is unlikely to reimburse the amount within a reasonably short time, the entity shall be required to act with leniency and fairness. Measures taken to indulge a client should be aimed at helping the client to make sustained returns in order to pay back the amount due within a fair amount of time and may involve the reduction, waiver or cancellation of interest, charge or fee.

The FCA noted in PS18/4 that the next step for the transposition of its CCMS redress mechanisms was to evaluate the efficacy of the industry's optional redress mechanisms (the possibility for clients to unsubscribe from automated credit line enhancements / prevent credit line enhancements from being granted to clients who have been in persistent debt for 12 month or more) and to consider further actions if any of these actions proved insufficient; to verify the efficacy of the redress mechanisms after they have been fully transposed by the companies and have been in place long enough.

EZV has now finished its behavioral tests in collaboration with credit card companies and has tested various ways of presenting refund policy choices to help low payout clients get more to buy where they can buy it.

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