Under proposals by John McDonnell, the Shadow Chancellor, Labour will force credit card companies to write off billions of pounds in long term consumer debts.
It is proposed capping the amount of money lenders can charge in interest so no one has to pay back more than double what they borrowed.
John McDonnell has said at the Party Conference this week that the Policy will help 3 million credit card holders who are “trapped by their debt”.
However, with £14billion being owed by those classed as being in ‘persistent debt’, the Policy raises questions over whether the cost of the Policy would end up being passed onto other borrowers, making their debts more problematic.
The average credit card debt owed by those in ‘persistent debt’ is approximately £3,500 per person. (Persistent debt is classed as people who have paid more interest charges and fees then their original borrowing).
The Financial Conduct Authority (FCA) has estimated that lenders would lose up to £1.3billion per year as a result of the proposed debt cap.
The Labour proposal is rather similar to the total cap cost already in existence for Pay Day loan companies, which was introduced in 2015. This debt cap limited the interest that can be charged on loans and debts of 30 days or less to £24 per £100 lent.
Mr McDonnell stated “we have seen with Pay Day loans, some companies are making massive profits from people’s financial difficulties”. Under pressure the Government are being forced to cap debt repayments on pay day loans. But more than 3 million credit card holders are still trapped by debt.
“I am calling upon the Government to act now to apply the same rules to credit card debt”.
Household debt in the UK has reached a record level of more than £1.8 trillion.
Consumer credit debt, which includes credit cards, personal loans and the use of overdraughts, hit £200 billion for the first time since 2008.
Earlier this year the FCA carried out a consultation on plans to tackle persistent debt problems this year. The FCA stated “we have recently consulted on a package of measures to help those in persistent debt. This includes wavering or cancelling interest or charges when customers cannot afford any of the options proposed to repay their balance”.
Conservative MP Liz Truss is Chief Secretary to the Treasurer. She states “we set up the FCA, which is ensuring credit card firms do more to help customers clear debt and, from January, rip off charges will be outlawed. The best way to help people with their finances is with our balanced approach to the economy”.
“Labour take it too far and would damage our economy, meaning fewer jobs, higher taxes and more debt. Working people would pay the price just like they did last time”.
Farleys’ personal insolvency experts have helped many people struggling with credit card debts to manage their finances and, where needed, file for bankruptcy. If you would like to speak to a specialist insolvency solicitor please call 0845 287 0939 or submit your enquiry online.