The Financial Conduct Authority (FCA) also said firms should not just suspend a credit card without having an "objectively justified" reason such as that the customer does not respond to the repayment options proposed within the time specified by the firm.
It today issued a written reminder to firms about its expectations of how they communicate with people and treat them if they have persistent debt on their credit cards at the 36-month point where further intervention is triggered. It said firms should help people who have been caught in a cycle of persistent debt for three years by proposing and agreeing plans with customers to resolve the situation.
It also told companies to review their approach to borrowers who are stuck in persistent debt - where they have been paying more in interest, fees and charges than the amounts they have shaved off their balance.
The FCA estimates that customers could collectively save up to £1.3 billion a year in lower interest charges. Its previous market analysis found that more than three million credit card holders, with a total of four million accounts, were in persistent debt. These customers pay around £2.50 on average in interest and charges for every £1 repaid.
The FCA wrote: "Our rules will assist customers to break out of persistent debt and ensure that customers who cannot afford to repay quickly are given help. As part of our review we are evaluating the approach taken by some firms in following our rules on persistent debt. Where we identify poor practice, we will take swift action to ensure customers are being treated fairly and our rules are being followed."
Peter Tutton, head of policy at debt charity StepChange, said: “It is helpful to see the FCA reminding firms of their responsibilities under the new rules.
“The FCA is unequivocal that firms should not cancel people’s cards wholesale. We particularly welcome the regulator telling firms to include in their letters a reminder that forbearance is available if people cannot afford what is suggested, and that they should signpost to independent advice, especially for those receiving letters from more than one card provider.
“Charities like StepChange can help. We have been working with creditors to ensure they know the services we can provide for customers receiving these letters. Our new online advice hub for persistent debt will ensure that everyone receiving these letters has somewhere to turn for independent information and guidance on what to do next.”