This Monday, Britain’s Labour opposition party proposal for a cap on interest payments on consumer credit card debt was rejected. According to a report coming from Reuters, the planned measures, supposed to help people avoid excessive debt will be given time to work, though.
“We are not there at the moment,” said Andrew Bailey, chief executive of the Financial Conduct Authority, as a response to the Labour’s proposal.
The new measures, to be revealed soon
Mr. Bailey declared at the Reuters Financial Regulation Summit that the watchdog has been consistently working on consumer credit cards and it’s now finalizing measures, following public consultation.
“Our general approach is look, we would rather like to see what the effect of those measures is,” he added at the Reuters office, in London.
In order to cover all the potential losses from consumer credit, a sector which has seen a heady growth lately, British banks need an additional 10 billion pounds in capital, which is far from being your average amount.
In the next two months, economists expect to see a raise in interest rates from 0.25 percent to 0.5 percent. Obviously, this would significantly increase pressure on people with large credit card debts.
On the other side, Andrew Bailey said that the focus of the FCA was on people who just can’t pay down their credit cards on time.
The move would’ve had a precedent!
Back in July, the watchdog renewed a cap on high interest rates charged on payday loans, but it’s now pressured to apply a similar measure on credit cards.
“An interest rate cap in some parts of (the) credit market would not work because the credit is not structured in a way that lends itself to a cap. The most obvious case is rent-to-own, where it would not work,” Bailey said.
Basically, cutting these charges on the far-from-being-the-best credit cards could have some serious consequences and all banks are aware of it. Also, leaving them in the hands of payday loans also has consequences, so it will be very interesting to see what decision the Bank of England will take.
