UPDATE 2-Britain to probe $250 billion credit card market

* Review to start end of 2015

* Industry says has already made changes in practices

* European Parliament back cap on cross border card fees (Adds industry reaction)

By Huw Jones and Steve Slater

LONDON, April 3 (Reuters) - Britain's financial watchdogwill investigate the 150 billion pound ($250 billion) creditcard market to assess if "survival borrowers" who find itdifficult to repay are being treated fairly, it said onThursday.

The decision by the Financial Conduct Authority (FCA) comesjust two days after the year-old watchdog took over supervisionof Britain's consumer credit market with its 50,000 firms.

The watchdog said 30 million Britons hold at least onecredit card, such as those issued by high street banks, and itwould explore whether competition in this market was workingeffectively for consumers, especially those in difficultfinancial situations.

It said it would launch the review at the end of this yearwith a focus on those who are barely able to pay the minimumamounts each month.

The UK Cards Association, a trade body for the sector, saidthe sector has already made recent changes on credit limits andforbearance for those who miss repayments, with credit card debtfalling while spending has risen.

"That said, we are not complacent about the small number ofcustomers who find that changed circumstances, such as illnessor redundancy, mean they need more support with managing theirdebts," the association's head of policy, Richard Koch, said.

Credit cards were launched by Barclays in the 1960sand there are now 56 million in issue from a variety of banksand others, with 57 billion pounds in outstanding balances.

"Too many credit cards appear to be designed to catchcustomers out," said Richard Lloyd, executive director ofBritain's consumer group Which?

SURVIVAL BORROWERS

The FCA said recent research showed 9 million Britons wereconsidered to be in serious debt and that a considerable numberof people dubbed "survival borrowers" often feel they have nooption but to borrow money, through a high-interest payday loanor using a credit card, to help settle their bills.

David Kenmir of consultancy PwC said the review was thelatest example of the FCA using new competition powers to tackleissues rather than firms as regulators have done in the past.

The watchdog is already investigating payday lenders with aview to imposing a cap on interest rates from 2015.

"It is clear that the FCA sees competition as a priority andis evidence of the regulator using market studies to gather alarge body of information prior to becoming a competitorregulator in its own right next April," said Caroline Hobson, acompetition partner with lawfirm CMS.

FCA Chief Executive Martin Wheatley said the review wouldlook at why card issuers are providing the means, in some cases,for the most indebted consumers to get into further debt.

It will use so-called behavioral economics to look at howconsumers respond to the design, pricing and distribution ofcredit card products.

StepChange, a charity, has told the FCA that about 10percent of people who seek its advice have an average of 27,000pounds of debt and five or more credit cards.

Wheatley said there was no pre-determined outcome for thereview. "There is, however, a duty of care to consumers, and Ithink it's important for there to be clarification of whethercompetition is working in their interests," he said.

British lawmakers have been putting pressure on regulatorsto find ways to increase competition in banking and otherfinancial services in a sector dominated by a few big players.

The European Parliament on Thursday approved a cap oncross-border card fees and the law now goes to member states,whose backing is also needed.

"While the idea of capping fees may be politicallyattractive, it makes little sense if consumers and smallbusinesses end up paying more for their cards," MasterCard said.

Visa Europe said it was disappointed with the vote andcriticised the proposed fee cap as being arbitrary and without acost analysis to justify it.

($1 = 0.6012 British Pounds) (Editing by Mark Heinrich)