The legal position
Transactions made by credit card are linked agreements under the Consumer Credit Act 1974. Consequently, credit card companies can be held responsible for misrepresentation and for defective goods or services costing between £100 and £30,000 if the trader is unwilling to remedy the situation. This could include a claim for damages due as a consequence of the misrepresentation or other breach. The House of Lords has confirmed that overseas transactions are covered.1Office of Fair Trading v Lloyds TSB and Others [2007] UKHL 48 (Adviser 125 consumer abstracts) If an additional credit card is issued to another person (usually a member of the client’s family) to enable her/him to use the client’s account, the client is liable for all transactions incurred by the additional cardholder, including if the client has not specifically authorised the transaction in question.
Unless the credit card agreement is a joint agreement (signed by both the client and the additional cardholder), the additional cardholder has no liability under the agreement if the client fails to pay.
If the client withdraws the additional cardholder’s permission to use the credit card, the client remains liable for any transactions incurred by the additional cardholder until the client informs the creditor that the second cardholder’s permission has been withdrawn in accordance with the terms and conditions of the credit card agreement. Once that has been done, the additional credit cardholder is no longer an ’authorised person’ and the client has no further liability for transactions incurred by her/him.
Persistent debt
**Alert: Since 9 April 2020, the rules set out below are suspended for the duration of any deferral payment arrangement made as a result of the coronavirus outbreak. Clients who have reached the third stage of this process now have until 1 October 2020 to respond to the communication sent to them by the creditor as part of that stage, and the FCA has made clear that there should be no need to suspend any cards before that date.
Updated FCA guidance with effect from 3 July 2020 confirms that these provisions are suspended during any initial or further payment deferral period. However, the period for which any payment deferral was granted will still be counted in the assessments that lenders are required to make. Guidance suggests that, if a month 36 communication is sent following a period of deferral, lenders should consider allowing clients up to an additional three months to respond.
When a debt is included in a Breathing Space moratorium and the credit card company is complying with its obligations, the requirements set out below are suspended for as long as the moratorium is in effect (CONC 6.7.28G(1)(b)) (see here).** Since 19 December 2018, credit card companies have been required by the FCA to take a series of escalating steps to help clients who are deemed to be in ‘persistent debt’. ‘Persistent debt’ is when the amount the client has repaid towards the credit card balance over the preceding 18-month period comprises a lower amount of principal than interest and charges. The first intervention required by the credit card company is at the 18-month point, followed by subsequent interventions at 27 months and 36 months.
At the 18-month point, the credit card company must contact the client and point out the level of repayments over the previous 18 months and how increasing the level of payment would reduce both the cost and the time it would take to repay the balance. Encourage the client to contact the credit card company to discuss the her/his financial circumstances and the possibility of increasing her/his payments without an adverse effect on the her/his financial situation. Give the client details of not-for-profit debt advice providers and encourage her/himto contact them.
At the 27-month point, if the pattern of payments has continued so that it appears the client will remain in ‘persistent debt’ at the 36-month point, the credit card company must repeat the previous 18-month communication.
If, at the 36-month point, the client is still in ‘persistent debt’, the credit card company must taken reasonable steps to assist the client to repay the balance more quickly and in a way that does not adversely affect her/his financial situation. The credit card company must contact the client and set out options for the client to increase payments with a view to repaying the balance within a ‘reasonable period’ (generally, three to four years in the FCA’s view). The credit card company must also provide the client with contact details of not-for-profit debt advice providers and encourage her/him to contact them. If the client either does not respond to the communication or confirms that one or more of the repayment options is sustainable, but that s/he will not make the payment, the credit card company must suspend or cancel the client’s use of the card.
Where the client confirms the payment options are unsustainable, or the pattern of payments actually made under the repayment plan indicates that the client is unlikely to repay the balance in a reasonable period, the credit card company must treat the client with forbearance and due consideration. This might involve reducing, waiving or cancelling any interest, fees or charges and accepting token payments where the client would not otherwise be able to meet her/his priority debts or other essential living expenses.2FCA Handbook, CONC 6.7.3A, 6.7.3B and 6.7.27-6.7.40. See also P McCarron, ‘Addressing the Challenge of Persistent Credit Card Debt’, Quarterly Account 49, IMA