United Kingdom (and EU regulation)

FCA consults on credit card market study

In November 2014 the FCA published terms of reference for its credit card market study. Through the market study the FCA seeks to understand:

the extent to which consumers drive effective competition through shopping around and switching;
how firms recover their costs across different cardholder groups and the impact of this on the market; and
the extent of unaffordable credit card debt; in particular whether some consumers are over-borrowing or under-repaying on their balances and whether firms have incentives to provide unaffordable lending that leads to consumer detriment.

Following the terms of reference, the FCA has now published Market Study 14/6.2: Credit card market study: interim report (MS14/6.2).

In MS14/6.2 the FCA notes that:

in most of the market, competition is working fairly well for consumers;
firms compete strongly for custom on some features, offer a range of products to meet consumers’ needs and there have been new entrants in the market in recent years;
consumers shop around, switch and value the flexibility offered by credit cards;
firms were not targeting particular groups of consumers to cross-subsidise other groups; and
consumers in default are unprofitable and firms are active in contacting consumers who miss payments and triggering forbearance at this point. However, consumers with persistent levels of debt or who make minimum payments are profitable, and firms do not routinely intervene to address this behaviour.

MS14/6.2 also identifies a range of potential remedies to make the market work better for consumers including:

enabling better access by consumers to transaction data;
boosting the role of comparison sites;
ensuring consumers can search the market without damaging their credit score;
prompting consumers when they are nearing the end of a promotional period; and
measures to give consumers more control over credit limits and utilisation, and measures to encourage consumers to pay off debt quicker when they can afford to.

The deadline for comments to MS14/6.2 is 8 January 2016. The FCA intends to publish its final report in Spring 2016.