Credit card changes to cost lenders up to £1.3bn a year

New rules for credit card lenders will be imposed this week that are designed to save distressed borrowers up to £1.3bn a year in interest charges.

As it announced the new regulation, the Financial Conduct Authority said for customers that have been in persistent debt for 18 months, the card lender must contact the borrower and tell them to change their repayment. After 36 months the lender must let the borrower pay off the debt in a reasonable period. If they cannot repay, the card company must show forbearance, including reducing, cancelling or waiving interest or fees.

The rules take effect on 1 March and firms such as Barclays, Britain's biggest card lender, will have six months to comply. If they do not do so they risk enforcement action by the FCA.

The FCA found that credit card customers in persistent debt on average pay £2.50 in interest and charges for every £1 they borrow. There are 4m such accounts, held by 3.3m customers, in the UK but firms have little reason to help their customers because they are profitable.

The new requirements will cost lenders between £310m and £1.3bn a year in forgone interest, the FCA estimated. By 2030 consumers will have saved between £3bn and £13bn. One-off costs to the industry of implementing the changes will be a maximum of £101.3m with ongoing costs of £17.7m a year, the FCA said.

Christopher Woolard, the FCA’s executive director of strategy and competition. said: “Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time - without making much headway on the outstanding balance.

“Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly are given help.”

The FCA agreed with lenders that they would not increase credit limits for customers who had been in persistent debt for 12 months.