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Many struggling with debt have credit limit automatically increased
New research from Citizens Advice has found that one in five people who are currently struggling with debt have seen their credit card limit increase automatically despite the situation they are in. These credit limits were raised regardless of there being no request to their bank or lender to do so, creating a cause for concern for many debt charities.
Of those with credit cards, around 12% saw their credit limit go up automatically whereas for those struggling with credit card debt that figure jumped to 18%. Citizens Advice has now called for a ban on credit limit increases without the explicit consent of the cardholder.
Financial services regulator, the Financial Conduct Authority (FCA), estimates that 3.3 million people are dealing with persistent debt problems in the UK. When commenting on Citizens Advice’s latest findings, the FCA said; “customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them.”
Recent figures show that the number of transactions on credit, debit or charge cards grew by 12% in the year to the end of June meaning that spending also rose to around 7.2%. Poor affordability checks by lenders have been blamed by Citizens Advice for making the financial situations of people worse than they already are.
Chief executive of Citizens Advice, Gillian Guy, said; “It is clear that irresponsible behaviour by some lenders is making people’s debt situation worse – such as offering more credit when they already have thousands of pounds of unpaid debt
“The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances,”
However, UK Finance have reiterated that they are there to help those struggling with persistent credit card debt. They pointed to the proposals which have been developed in an attempt to address concerns of the regulator and ensure no customer in persistent debt is offered an increase to their credit limit.
Banks and lenders are currently facing an upcoming deadline where they will have to prove to the regulators that they are not lending money recklessly to consumers. This comes in the wake of the Bank of England’s crackdown and tougher stance with regards to the consumer credit market which has recently grown again despite household income stagnating.
In order to tackle this, the FCA has suggested lenders cancelling interest and charges in extreme debt cases and ensuring that firms work more closely with those who are in debt to draw up payment plans or provide them with some breathing space.
With many regulators and debt charities calling for change to help protect those suffering from persistent debt problems, there is a lot of pressure on the industry to start to do everything it can to help their most financially vulnerable customers.
So what can you do if your credit limit has been increased without your permission?
- Opt out – You have 30 days from the date your credit limit is increased to opt out of the higher limit and reduce it back down to its original limit.
- Budget – If you can’t reduce your credit limit then it will be worth budgeting the money you spend on your credit card from now on. This should ensure that you don’t overspend and that you only spend what you can afford to pay back.
- Pay it off – Your final option is to pay off your credit card and close the account down. This way you have not only paid off a debt but you have removed the temptation of overspending on credit.
If you are struggling with persistent debt, whether from credit cards or other forms of credit, get in touch with us on 0800 901 2488. Our friendly, knowledgeable advisers will listen to your situation and help you find the best solution to help you deal with your debt problems.