The financial watchdog says competition in the credit card market is working fairly well for most consumers, although it has expressed concerns about the scale of potentially problematic credit card debt and claimed more could be done to help struggling borrowers.

Credit card firms compete strongly for custom on some features, offer a range of products to meet consumers' needs, and new providers have entered the market in recent years, according to the Financial Conduct Authority (FCA).

The regulator also states in its interim report into the credit card market, which was published today, that credit card users switch to get the best deal and value the flexibility offered.

However, while consumers in default are "extremely unprofitable" for lenders, the FCA notes that those with persistent levels of debt and those who make just the minimum payments are profitable, and firms "therefore have fewer incentives to help these customers".

Two million credit cardholders are currently in arrears or have defaulted, according to the watchdog. While it estimates that a further two million people are in persistent levels of debt that some may be struggling to repay, and an additional 1.6 million people only make the minimum payments on their debt each month.

See's Debt Problems guide for what to do and where to get help if you're struggling.

More could be done to help those in debt

Christopher Woolard, director of strategy and competition at the FCA, says more could be done to help the "significant minority" struggling with their credit card debt.

He adds: "This is a really important market in the UK. Around 60% of adults have at least one credit card, and there is an estimated £61 billion in outstanding balances.

"Our study suggests that the market is working reasonably well for most consumers, with a range of cards on offer. However, for a significant minority who are in persistent levels of debt, the market could potentially work better."

The watchdog has put forward a number of proposals, which will now be consulted on, to make the market work better for consumers. It's called for:

  • The market to provide better information for those shopping around.
  • Ensuring borrowers can search the market without damaging their credit score – something which's Credit Card Eligibility Calculator already does for many cards.
  • Prompting consumers when they are nearing the end of a promotional period.
  • Giving consumers more control over credit limits.
  • Encouraging consumers to pay off debt quicker when they can afford to.
  • Firms to do more to identify earlier those consumers who may be struggling to repay and take action to help them manage their repayments.

The FCA's final report on credit card debt will be published in spring 2016.

'More flexible repayment structures need to become standard'

Martin Lewis, founder of, says: "I'm glad to see the FCA is not trying to fix something that isn't broken – something we cautioned against in our response to it earlier this year.

"In general for most people the credit card market is the most competitive we've ever seen, with 0% deals of up to 37 months on balance transfers available – giving someone over three years to pay off their debts for only the relatively trivial cost of a balance transfer fee. Done right that makes plastic by far the cheapest way to borrow, smashing loans and even mortgage costs.

"It has, however, rightfully focused on the real area, which is those who struggle to repay. Minimum repayments are dangerous – as they are based on a percentage of what is owed – and only just service the interest each month. This locks people into repaying interest for years; and many who do this are unable to shift to cheaper deals meaning costs snowball. 

"More flexible repayment structures need to become standard, with lenders mandated to offer and encourage options like 'pay the higher of a fixed amount or the minimum' which would clear debt far more quickly.

"There are also problems with the credit card summary boxes, which provide information, but in a language that means they're useless for many people. We need better communication from lenders, so people know what they’re getting into."

Additional reporting by the Press Association.