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* Analysts say watchdog has thrown a lifeline
* Credit cards ultimately could reduce deals on offer
* First batch of credit card suspensions could be this month
(Adds detail)
By Huw Jones
LONDON, Feb 3 (Reuters) - British lenders will only be able
suspend credit cards if they can prove they have exhausted other
options to help customers stuck in debt, Britain's financial
watchdog said on Monday.
Under rules introduced in March 2018, the Financial Conduct
Authority (FCA) forced credit card companies to help
persistently indebted customers repay what they owe and save up
to 1.3 billion pounds ($1.70 billion) annually through lower
interest charges.
The banks and other lenders had to identify and write to
customers in difficulty. If the debt continued for 36 months,
they had to act and ultimately could suspend credit cards, with
a first batch of suspensions possible this month.
The FCA said it was concerned some firms were planning a
blanket suspension of cards for all customers in the persistent
debt category. That could drive them to desperate measures, such
as resorting to loan sharks.
"When they (firms) choose to suspend or cancel a customer's
access to credit, they must serve customers with a notice giving
reasons for this, and those reasons must be objectively
justified," the FCA said in a letter on Monday to credit card
firms.
"Where we identify poor practice, we will take swift action
to ensure customers are being treated fairly and our rules are
being followed."
Customers may not be aware they could be entitled to
measures such as reduction, waiving or cancellation of interest
and charges.
Persistent debt is defined as paying more in interest, fees
and charges over 18 months than the principal on the card.
The rules target some 1.6 million customers who are making
minimum payments and urge them to follow a repayment plan for
3-4 years. They are a small portion of Britain's 30 million
credit card-holders.
StepChange, a charity that helps people in debt, said
between one and two million people will shortly receive letters
about their debt under the FCA deadline.
"The FCA is unequivocal that firms should not cancel
people's cards wholesale," said Peter Tutton, head of policy at
StepChange. He welcomed the FCA's telling firms to include in
their letters a reminder that options are available if people
cannot afford suggested payments.
Rachel Springall, an analyst at Moneyfacts.co.uk, said the
FCA could have thrown struggling borrowers a lifeline.
"There may well be borrowers out there who are keeping up
with the minimum repayments but are unable to pay more each
month, and these borrowers need support," she said.
But she said there was a risk credit card firms could reduce
the range of deals on offer if they lose income from interest
fees.
UK Finance, which represents banks, said it was important
customers do not ignore letters from their card provider.
($1 = 0.7631 pounds)
(Reporting by Huw Jones; editing by Barbara Lewis)
