Campaigners urge financial watchdog to cap credit card costs to slash debt

End the Debt Trap Coalition report warns that consumer credit debt has skyrocketed to £217bn – the highest level since the 2008 Financial Crisis – and urged the FCA to step in

Debt campaigners are calling for the Financial Conduct Authority to step up protection for low-income consumers as credit card debt hits its highest point since 2008.

The End the Debt Trap Coalition has insisted that the financial watchdog must provide a cap on the costs of credit cards – as they did to target high-cost credit in 2015 – after seeing consumer credit debt reach £217bn with a third of that amount owed on credit cards.

The group – including Centre for Responsible Credit, Jubilee Debt Campaign, New Economics Foundation and Research for Action – says that almost half of the poorest households are now using credit cards for everyday living costs and food.

And with many still paying more than £2 for every £1 borrowed, it is leaving the most vulnerable drowning in debt.

This is despite new measures introduced by the FCA last year to “curb persistent credit card debt”, according to the coalition’s Regulating the credit card market: why we need a cap on costs report.

Customers are still falling prey to high interest costs – almost half of those spending a quarter of their income on debt repayments earns less than £15,000, which underlines the need for a cap.

The report also finds that 18 per cent of credit card debts are just used to pay for food and living costs and 12 per cent are on unplanned emergencies. That is especially true for people on the lowest incomes, with 40 per cent of people earning under £15,000 using a credit card for these purposes.

Andrew Pendleton, director of policy at the New Economics Foundation, said: “With incomes squeezed and costs rising and with the fiasco of Universal Credit, many of the poorest households in the country are turning to their credit cards to make ends meet, but then sinking deeper into the debt trap.

“It’s a growing crisis and it’s shocking that the FCA does not have a handle on it.”

Meanwhile, debt charity StepChange has released their own study into sub-prime credit cards, warning that four million people are still paying between 30 and 70 per cent APR.

And that is having a detrimental effect on the financial situation of 79 per cent of their clients, with the charity warning that taking out more credit cards to pay off debt leads to a “vicious circle”.

An FCA spokesperson, responding to calls for a cap, said: “We introduced caps on high-cost short-term credit and rent-to-own, as we assessed that to be the most appropriate intervention in these markets. But simple caps won’t always deliver the right outcomes for consumers.

“That is why we take an evidence-based approach, tailoring how we intervene to the issue. We will continue to monitor how the consumer credit market is serving its customers and where we see harm, we will take action.”

Big Issue Invest, our social investment arm, has worked with firms like Five Lamps, Moneyline, Street UK and Fair For You to help people with nowhere else to turn avoid falling into this debt trap.