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Creditfix LB 03-2017

Credit Card Minimum Payments to be Stopped

The Financial Conduct Authority (FCA) is considering ‘de-anchoring’ the minimum payment currently offered on credit cards.

The financial watchdog feels that the minimum payment on credit cards encourages users to build up excessive debt at expensive cost.

They have made the proposals after carrying out research on the way consumers use credit cards.

They said academic studies had previously showed credit card users’ decisions on how much to pay back can be ‘disproportionately influenced’ by statements of repayment amounts, which can result in some consumers being more likely to make minimum repayments or repayments close to the minimum.

The FCA said: ‘This means they can end up paying more in debt service costs and taking longer to repay their credit card debt than they need to. While their debt may not yet be problematic, it is more expensive than it needs to be and there is some risk that it may become problematic in the future, for example, in the event of an income shock.’

The watchdog found that offering increased minimum repayments on direct debits didn’t increase overall payment amounts because users in manual repayments subsequently paid back less.

Providing graphics on statements to display options to repay all debt also didn’t work, having no effect at all on manual repayments.

Instead, its research found that removing the minimum repayment amount from the manual repayment screen (de-anchoring) had a dramatic positive effect, significantly increasing the value of repayments made.

The authority said: ‘Given the effects we observed during our testing, we are considering consulting on changing our rules and guidance to mandate the removal of the minimum repayment anchor.

‘We consider a de-anchoring measure has the potential to increase consumers’ credit card repayments where they can afford to do so while preserving the flexibility of credit cards, which millions of consumers value.

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