The financial watchdog will investigate the £150bn credit card market to assess if “survival borrowers” who find it difficult to repay are being treated fairly.
The decision by the Financial Conduct Authority comes just two days after the year-old watchdog took over supervision of the consumer credit market with its 50,000 firms.
The watchdog said 30m consumers hold at least one credit card, such as those issued by high street banks, and it would explore whether competition in this market was working effectively for consumers, especially those in difficult financial situations.
It said it would launch the review at the end of this year with a focus on those who are barely able to pay the minimum amounts each month.
The UK Cards Association, a trade body for the sector, said the sector has already made recent changes on credit limits and forbearance for those who miss repayments, with credit card debt falling while spending has risen.
“That said, we are not complacent about the small number of customers who find that changed circumstances, such as illness or redundancy, mean they need more support with managing their debts,” the association’s head of policy, Richard Koch, said.
Credit cards were launched by Barclays in the 1960s and there are now 56m in issue from a variety of banks and others, with £57bn in outstanding balances.
“Too many credit cards appear to be designed to catch customers out,” said Richard Lloyd, executive director of consumer group Which?
The FCA said recent research showed 9m consumers were considered to be in serious debt and that a considerable number of people dubbed “survival borrowers” often feel they have no option but to borrow money, through a high-interest payday loan or using a credit card, to help settle their bills.
David Kenmir, of accountancy firm PwC, said the review was the latest example of the FCA using new competition powers to tackle issues rather than firms as regulators have done in the past.
The watchdog is already investigating payday lenders with a view to imposing a cap on interest rates from 2015.
FCA chief executive Martin Wheatley said the review would look at why card issuers are providing the means, in some cases, for the most indebted consumers to get into further debt.
It will use so-called behavioural economics to look at how consumers respond to the design, pricing and distribution of credit card products. Mr Wheatley said there was no pre-determined outcome for the review.