Category Archives: Money

Credit Cards | FCA to Investigate credit cards

Britain’s financial watchdog will investigate the 150 billion pound ($250 billion) credit card market to assess if “survival borrowers” who find it difficult to repay are being treated fairly, it said on Thursday.

The decision by the Financial Conduct Authority (FCA) comes just two days after the year-old watchdog took over supervision of Britain’s consumer credit market with its 50,000 firms.

The watchdog said 30 million Britons hold at least one credit card, such as those issued by high street banks, and it would explore whether competition in this market was working effectively for consumers, especially those in difficult financial situations.

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

The UK Cards Association, a trade body for the sector, said the sector has already made recent changes on credit limits and forbearance for those who miss repayments, with credit card debt falling while spending has risen.

“That said, we are not complacent about the small number of customers who find that changed circumstances, such as illness or redundancy, mean they need more support with managing their debts,” the association’s head of policy, Richard Koch, said.

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

“Too many credit cards appear to be designed to catch customers out,” said Richard Lloyd, executive director of Britain’s consumer group Which?


The FCA said recent research showed 9 million Britons were considered to be in serious debt and that a considerable number of people dubbed “survival borrowers” often feel they have no option but to borrow money, through a high-interest payday loan or using a credit card, to help settle their bills.

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

The watchdog is already investigating payday lenders with a view to imposing a cap on interest rates from 2015. [ID:nL6N0M830R]

“It is clear that the FCA sees competition as a priority and is evidence of the regulator using market studies to gather a large body of information prior to becoming a competitor regulator in its own right next April,” said Caroline Hobson, a competition partner with lawfirm CMS.

FCA Chief Executive Martin Wheatley said the review would look 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 how consumers respond to the design, pricing and distribution of credit card products.

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

Wheatley said there was no pre-determined outcome for the review. “There is, however, a duty of care to consumers, and I think it’s important for there to be clarification of whether competition is working in their interests,” he said.

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

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

“While the idea of capping fees may be politically attractive, it makes little sense if consumers and small businesses end up paying more for their cards,” MasterCard said.

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


SME Funding | Lloyds to fund by £1 Billion

Lloyds Bank, said it will grow its lending to small-and-medium enterprises (SMEs) by a further 1 billion pounds this year, seeing stronger growth prospects for smaller businesses as Britain’s economic recovery takes hold.

Lloyds’s pledge comes after British politicians launched an inquiry last month into the lending practices of banks to small businesses last month. Britain’s competition watchdog is also considering a small business banking probe.

Banks such as Royal Bank of Scotland, have been accused of sucking cash out of viable small businesses while other major banks have been criticized for not offering enough credit to SMEs.

Lloyds said the move would help underpin its track record in SME lending, which has increased against a decline across the wider banking industry.

“We are now seeing the recovery gathering pace and there are more reasons for small and medium-sized enterprises to be optimistic and to start investing for growth,” Lloyds’s managing director of SME and mid markets banking, Tim Hinton, said in a statement.

Apart from the growth in lending, it plans to double the amount of money local bank managers are able to lend without central approval to 1 million pounds, a policy aimed at ensuring lending decisions are made more quickly.

Lloyds also intends to increase lending through trade finance for overseas businesses by 25 percent during 2014.