Have you had your credit card limit extended without your knowledge?
A study by Citizen’s Advice has found that 6 million people have had their credit card limits extended without their consent. Mostly, this has been people who are struggling with their debts.
By asking over 2000 adults between the 8th and 9th November, the study has found that:
- 28% of people who have a credit cards have had their credit limit increased in the past year. This is equivalent to 8.4 million people.
- The average amount that credit card limits were raise was £1,481
- But, 1 in 10 people had their credit card limits increased to £3,000
- The majority of the people who had their credit card limits increased were already in debt.
Surely, this is a good thing?
Some people might be thinking that offering more credit, or, in other words, more money, to those who need it may not a bad thing. If a person needs a loan to deal with an emergency financial situation, like an unexpectedly large bill, or a broken boiler, then having access to further credit could be a life saver.
However, it is important to remember that this money is not free. It is just adding to people’s debt, and for people who are already struggling with debt, this can cause serious problems.
The bigger issue is the fact that these credit card debts are unintentional. If you think that you can’t spend more than £500, which is an amount you can afford, you might rely on the limit kicking into place to stop any excessive spending. When it turns out the limit has been raised, without your consent, to £1000, you could end up spending hundreds more than you intended. This is hundreds of pounds that you cannot afford.
Of all the 8.4 million people who had a credit card limit rise, only 23% had actually asked their credit card provider for one. The report by Citizens Advice also demonstrated that 32% of credit card holders who did not have confidence that they could repay their debts were given a credit increase anyway, suggesting that measures are not stringent enough.
Ultimately, only 23% of all credit card holders felt genuine confidence at all in their ability to repay their credit card debts.
One particularly poignant example, highlighted by the report, saw a woman with an initial credit card limit of £500, which she used to pay unexpected bills, have her limit extended a number of times until she had £3,500 of credit card debt. This was much more than she could afford to pay back.
As the chief executive of Citizens Advice, Gillian Guy, has said, ‘Few Consumers support unsolicited increases and our research shows that they make people’s debt problems worse’.
Guy argues that lenders are ‘actively pushing it on people without enough consideration as to who can afford to pay and who can’t’.
An analysis of the terms and conditions of the 12 largest credit card providers in the UK supports these claims. It found that 11 of the 12 permitted providers to raise their customers’ credit limits without their consent.
This report is only the latest in a year which has been filled with criticism and concern on the issue of personal debt. The Bank of England has expressed its concern around just how many people are in debt, and recently revealed that British consumers took on more credit card debt this September than they had in any other month since May 2016. Similarly, the Financial Conduct Authority is currently conducting reviews into various debt-related financial issues, such as Car Financing.
Is there a solution?
It is not all doom and gloom, however, and Citizens Advice also puts forward a solution in their report. They call for a ban on unsolicited credit card limit increases. In particular, they are asking Chancellor Philip Hammond to include such a policy in his next budget.
Another solution is being developed by the Financial Conduct Authority, who are creating a voluntary code of conduct for unsecured loan providers. This will involve asking customers for their consent before raising limits, but also give them the option to continue receiving uninvited limit increases. Existing Customers will be given the option to ask their lender to require their consent.
In response to the Citizen Advice Report, Richard Koch, who is the head of cards at UK Finance, a lobby group who represents 300 British finance firms, argued that they were ‘fully committed’ to this new agreement. He stated, ‘The industry has come together to voluntarily agree new protocols to ask customers whether they would prefer to opt out or opt in for any credit limit increase offers.’
He also added, ‘The customers who the Financial Conduct Authority and Citizens Advice are most concerned about will be excluded from receiving any such offers’.
This may seem like a solution is on its way, but, it is important to note, however, that the key word in the FCA’s code of conduct is ‘voluntary’. UK Finance may have committed to following the code, but to what extent will others? And to what extent will the code be enforced and followed, if it is not a legal requirement?
As such, the proposal put forward by Citizens Advice is a much more solid idea. A legal, blanket ban of credit card limit raising without explicit consumer consent, enforced by the Chancellor, will be more effective in preventing unexpected, and unwanted, debt.
Have you been affected by unexpected limit increases?
If you are one of the thousands of people who have taken on much more debt than you realised, or intended, as a result of unexpected credit card limits, then try not to worry. There are many solutions to suit your debt situation, and we are happy to discuss them with you. You can call us on 0808 2085 198 or explore our website to find out more.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.