Credit card providers to seek customer consent before raising credit limits

Credit card providers have agreed with the Financial Conduct Authority to ask customers' permission before raising their credit card limits, after research found this was a contributing factor to debt problems for many people.

The Citizens Advice Bureau had urged Chancellor Philip Hammond to ban unsolicited credit card increases altogether in his statement next week after finding 6m people had their credit limit increase in the last year prior to their consent.

Bank of England officials warned banks and other credit providers in the summer that they may face fresh action against careless lending, in what was referred to as a "spiral of complacency" regarding creeping levels of consumer debt.

Close to a third of those showed signs of struggling financially, stirring fears that credit companies are putting individuals and the wider economy at risk of being debt ridden.

Credit card holders, on average saw their card limits rise up to £1,481 without being asked, the research found, with 12% of people receiving increases of £3,000 or more, despite records showing that 85% of people believe credit companies should seek permission of card holders before increasing their limits.

Only 23% of credit card holders given a larger credit limit had asked for one, with the remaining three-quarters of people being given a larger credit limit by their card companies without explicit consent.

Citizens Advice said it was concerned that the credit card companies weren't being required to seek permission from their existing customers before raising limits.

Gillian Guy, chief executive of the charity, said: “It’s clear that credit card companies are contributing to the rise in consumer debt.

“Rather than credit card holders seeking to take on more debts, lenders are actively pushing it on people without enough consideration as to who can afford to pay and who can’t.

“Few consumers support unsolicited increases and our research shows that they make people’s debt problems worse. The Chancellor must step in to prevent credit card companies weighing people down with unwanted debt - particularly when they are already struggling to keep their heads above water.”

Bank of England financial stability director Alex Brazier said in July that a serious increase in personal loans could pose a danger to the UK economy.

While household incomes edged forward just 1.5%, outstanding payments on car financing, credit card balances and personal loans had all risen 10% in the last 12 months.

Brazier said: "Household debt – like most things that are good in moderation – can be dangerous in excess", and that the current trend was "dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy."

Although the readiness of consumers to take on more debt to fund spending did allow for a strong growth of the economy in the immediate wake of the Brexit vote, which was quite contrary to what the BoE had predicted, Brazier said there were "classic signs" of lenders, believing the risks were lower after this period of growth placing "undue weight" on the recent performance of credit cards and loans in "benign conditions."