Credit card companies 'fuelling debt'

Citizens Advice said that nearly one in five people struggling to pay their existing debts had seen their credit card limit increased – higher than for cardholders in general.

The news comes just months after it emerged that more than 700 people in Shropshire contacted debt charity StepChange for help with debts totalling £11.4 million during the first six months of last year.

Citizens Advice said poor affordability checks by lenders were making people's financial situations worse.

Citizens Advice said 18 per cent of those struggling financially had seen the limit increased without request, compared with 12 per cent overall.

The charity has called for a ban on increasing customers' credit limits without their explicit consent.

Jackie Jeffrey, chief executive of Citizens Advice in Shropshire, said people who approached the charity for help with credit card debt were usually on low incomes and struggling to pay their bills.

"The average income of clients with credit card debts struggle to cover their monthly bills, and would only be able to afford minimum payments on the credit card bills ," she said.

"To increase their credit limit without checking their ability to pay only increases their indebtedness," she said.

Mrs Jeffrey said the charity helped 1,362 people in the district – not including Telford – with debt problems.

Of those who had problems with credit card debt, the charity helped 52 of them reschedule debt totalling £383,628 – an average credit card debt of £7,377.

Mr Jeffrey said the majority of people who approached Citizens Advice for debt help in Shropshire were struggling with low income and were falling behind with "priority" debts such as rent, mortgage or council tax.

"The perception is that people get into debt because they over spend or are greedy but the majority of our clients struggle with low income and have other issues too such as problems with benefits, housing and utilities.

"Very often it is a life event that puts people in to debt such as losing a job, a death in the family or relationship breakdown"

The report has been welcomed by debt advice charity StepChange, which reflected the experiences of its own clients.

Chief executive Mike O'Connor said: “Our recent research showed that 54 per cent of our clients with credit cards had seen their limit increased without them asking for it, and of those, 49 per cent said this had made their debt problems worse. "Furthermore in some instances, credit limits are being increased when people in financial difficulty ask their creditors for help."

He said the charity had previously called on the Financial Conduct Authority (FCA) to ban the practice of automatic increases to credit limits unless the customer has opted in to it.

"As credit cards are a significant part of the debt landscape, banks not only need to ensure they are carrying out thorough affordability checks, but also identify people who are in difficulty early and provide effective financial assistance, not more credit," said Mr O'Connor.

In a report published earlier this year, the Financial Conduct Authority (FCA) called for a ban on increasing credit limits for people in "persistent debt" for 12 months or more.

It estimated that there were 3.3 million people in the UK who fell into the "persistent debt" category, where the cost of interest payments was exceeding the amount of the debt being repaid.

"Customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them," said the report.