Struggling credit card holders could save up to £1.3bn a year under new rules.
As reported by The Guardian, the new regulations could see some credit card users switched over to cheaper personal loans and others having their interest and charges written off.
The Financial Conduct Authority (FCA) say the new regime being introduced tomorrow (Thursday 1 March) will significantly cut the numbers of people with problem card debt.
Around 3.3 million people in the UK are believed to be in persistent debt, typically each handing over an average of £2.50 in interest and charges for every £1 of debt they repay.
Christopher Woolard, from the FCA, 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.”
Credit card companies will have until September 1 to implement the new rules, with the FCA ordering companies to intervene after customers have struggled for 18 months with persistent debt.
Only making the minimum repayment on a credit card can prove hugely costly in the long run, but under the new regime, card firms will be required to explain the benefits of the customer increasing their payments, and advise them of where to get debt help and advice.
After three years of persistent debt, the credit card company will now need to offer customers a way to repay their balance in a reasonable period. They may also cut, waive or cancel any interest, fees or charges from that point if someone is seriously struggling to repay.
The FCA added: “Customer stress and financial difficulties will be reduced by resolving debt problems sooner. We expect about half of the accounts in persistent debt – 2 million – will move to faster repayments before 36 months, and around 1.4 million accounts will do so at 36 months.”
Firms that do not comply with the rules could face regulatory action.