Unwanted credit increases lure 4.5 million card holders into debt
Almost 19 million credit card holders (61%) have had their credit limit increased without requesting it – and 4.5 million of these (24%) have seen their spending spiral as a result
The average unrequested increase is £1,300, but more than one in ten (12%) have seen over £2,500 added to their credit limit
More than four in ten (42%) had no plan to deal with higher repayments from any extra spending
61% of credit card holders are unaware that it’s their responsibility to contact their provider and refuse the credit
A quarter of card holders (24%) took on the increase as it was too much hassle to contact the provider and reject it
Uswitch.com is calling on the FCA to prohibit credit card providers from raising credit limits unless requested by the customer and to follow the example set in Ireland and Australia.
19 million card holders have had their limit increased without asking, according to new research released by price comparison and switching site, Uswitch.com. Almost 4.5 million of these (24%), have seen their spending spiral after the surprise increase.
On average, card holders who received a credit increase saw their limit rise by over £1,300, but one in ten (12%) were given more than £2,500 of extra credit. Worryingly, more than four in ten of those who spent more as a result of the boost to their credit limit (42%) had no plan in place to manage the increase in monthly repayments. This is at a time when unsecured consumer borrowing is above pre-crisis levels.
Consumers can refuse a credit limit increase within 30 days of being informed by their provider. However, nearly two thirds (61%) of cardholders are unaware that it’s their responsibility to contact the provider if they wish to refuse the increase and opt out of any future increases. Unsurprisingly, a fifth of consumers (21%) think this rule is unfair.
But it’s not just a lack of consumer awareness around the current rules that’s driving credit card holders to take on additional credit. One in four (24%) card holders took on the unsolicited increase as it was too much hassle to contact the provider and reject it. More than one in ten (13%) weren’t even aware that their limit had increased and one in four (25%) only discovered that their limit had risen when they checked their online statement.
Card holders may be in the dark over credit limit increases because of how they are told about them. Over half (60%) of were informed about their credit limit increase by post, yet email is the preferred choice when it comes to being informed about any changes to their account.
With the Financial Conduct Authority (FCA) currently conducting a market study into credit cards, Uswitch is calling on the regulator to push ahead with the proposal to prohibit providers from raising credit limits unless requested by the customer. Following the example set in Ireland and Australia – where credit card companies cannot increase the limit without permission from the holder – could help protect millions from running the risk of taking on more debt.
Tashema Jackson, money expert at Uswitch.com, says: “Millions of credit card holders are running the risk of taking on more debt by providers increasing their credit limits – essentially offering them ‘free’ money. With these increased limits often unrequested, unwanted and a surprise, spending beyond their means without considering the repayments could be an easy trap to fall into. But with household debt on the rise, providers shouldn’t encourage customers to bite off more credit than they can chew.
“Consent, and ultimately control over their finances, need to be in the hands of consumers. Too many are in the dark about how they need to opt out of increases, or fail to do so because of the effort it will take them to contact their provider. We urge the FCA to introduce a consumer opt-in requirement for credit limit increases, which could greatly help consumers avoid unnecessary debt by ensuring that they are in better control of their borrowing.
“If customers do find themselves being offered additional credit unexpectedly and miss the 30 day window to opt out, they can still contact their provider and try to reduce their limit. Or, if they want the extra increase as a safety net, it’s important they stick to a careful budget and only spend what they can afford – not see the increase as ‘free’ money. It’s also worth keeping an eye on any impact a credit limit increase has on your credit score.”
Find out how you could save over £1,000 a year with Uswitch here.
Notes to editors
All research referred to was conducted online by Censuswide between 4th January 2016 and 5th January 2016, among 2,003 UK adults who own a credit card. 1. When asked ‘Has your credit card provider ever increased your credit limit?’ 61% answered ‘Yes, without asking’. 61% of 31,300,000 (Number of UK credit card holders – figures from UK Card Association) = 19,093,000 people. 2. Of those who had experienced their credit card being increased without permission, when asked ‘Following the rise in your credit limit, which one of the following best applies to you?’ 16.5% said ‘my spending increased slightly’; 7% said ‘my spending increased a lot’ = 23.5% or 4,486,855. Of all consumers who had had a credit limit increase, 24% answered ‘My spending increased slightly’; and 7.7% answered ‘My spending increased a lot’ = 28.1% or 5,365,133 3.When asked: ‘Thinking about the latest time your credit limit was increased without your permission how much was it increased by?’ the mean response was £1301.04. 8.6% said £2,501 - £3,000; 3.1% said ‘More than £3,000’ – 11.7% said more than £2,500. 4. Of those who had experienced their credit card limit being increased, when asked ‘With extra funds at your disposal, did you have a plan to deal with higher repayments due to your extra spending?’ 41.6% answered ‘No, I did not have a plan’ 5. When asked ‘Were you aware that it is the responsibility of the credit card holder to opt-out of receiving automatic credit limit increases?’ 61.2% answered No 6. Of those who had experienced their credit card being increased without permission, when asked ‘When you found out that your credit limit had increased, what did you primarily do?’ 23.8% answered ‘I did nothing because It was too much hassle to contact the provider and reject it’ 7. When asked ‘Thinking about the most recent occasion your credit limit was increased, how did your provider let you know that your credit limit had increased?’ 60.3% answered ‘I received a letter of notification from my credit card provider informing me of the increase’ 8. When asked ‘Thinking about how you would like your credit card provider to communicate with you, which of the following apply?’ 45.7% answered ‘Via email’ 9. Research from The Money Charity found that the total credit card debt in October 2015 was £62.8bn. Per household this is £2,324. http://themoneycharity.org.uk/money-statistics/ 10. When asked ‘Do you think this (consumers having to opt-out of credit limit increases) is fair?’ 20.9% said either ‘unfair’ or ‘very unfair’. 11. Of those who had experienced their credit card being increased without permission, when asked ‘When you found out that your credit limit had increased, what did you primarily do? 12.7% answered ‘I did nothing because I didn’t realise my limit was being increased’ 12. Of those who had experienced their credit card being increased without permission, when asked ‘Thinking about the most recent occasion your credit limit was increased, how did your provider let you know that your credit limit had increased?’ 25.1% answered ‘I noticed on my online statement’
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