Context:

The Financial Conduct Authority (FCA), commissioned this research to inform their new responsibilities for regulating the consumer credit market from April 2014. This formed part of a multi-strand consumer research programme commissioned to enhance the FCA’s understanding of the consumer journey in relation to the use of credit cards and overdrafts. The study was commissioned primarily in response to concerns about people with the highest use of overdraft facilities and revolving balances on store and credit cards. The UK Card Association noted in 2013 that 58.9 million credit cards were in circulation at the end of 2012. Furthermore, around 6.6 million people were estimated to be incurring in excess of £100 in overdraft and penalty fees in 2011. The research was also designed to help identify sources of consumer detriment (services or products adversely affecting users) in this market.

The study:

The research focused on credit cards (including store cards) and overdrafts (both authorised and unauthorised). The study objectives were to:

• Review consumer behaviour and attitudes towards purchasing or considering consumer credit products.
• Consider the consumer ‘journey’ between credit products, and explore how consumers can become over-indebted
• Identify key issues that shape and structure the market and investigate whether consumer behaviours can lead to detriment.

The FCA Consumer Spotlight Segmentation criteria was used to recruit participants. The criteria identifies six groups most commonly using overdrafts, and revolving balances on store and credit cards. The groupings are: people aged 21-54 years who are ‘starting out’, ‘living for now’, ‘hard pressed’, ‘striving and supporting’, ‘stretched but resourceful’ and ‘busy achievers’. Lower income households were also identified as being vulnerable to the use of credit and unauthorised debt. The research was conducted through 12 focus groups (one per segment per product). The focus groups were held in six cities across the UK (Belfast, Glasgow, Birmingham, Manchester, Bridgend, and London) and six face-to-face interviews were also conducted. The study engaged 102 participants.

Key findings:

trends in consumer behaviour. Consumers tended to:

• Take personal responsibility for their debt. However they also lacked awareness about how providers exploit the market.
• Rarely view their overdrafts as debt. Providers often present overdraft facilities within ‘funds available’, positioning the debt as part of the consumers’ balance
• View credit card and store card debt as a more of a burden, which often became a long-term concern.
• Only take out credit cards after a long time, in response to continual marketing (particularly direct mail ‘pre-approving’ a credit card in their name), and pressure from banks or stores. Only a minority of participants consciously searched for a credit card.
• Approach their initial credit card limit within a few months, (despite good intentions), particularly if they had secured the card to fund a specific purchase.
• Appear unclear how products worked and the costs involved. They were often unaware of the financial ramifications of accumulating debt. Participants also had limited understanding about how to compare products across credit categories (e.g. credit cards verses overdrafts) and within category (e.g. comparing credit card A to credit card B).
• Feel in control of their debt if they were making their credit card payments on time (usually the minimum required) or paying back their overdraft (even if only by £1) each month. Little thought was given to whether they were making inroads into paying off the debt.
• View overdrafts as simple products to understand, but did not understand the associated costs. Many consumers thought their overdraft was free-of-charge.

Points to consider:

• The findings are relevant to a range of stakeholders, from government and regulatory bodies to providers of credit cards and overdraft facilities, and the consumers of these products.

• As a qualitative research study, with a relatively small sample, the findings are not generalisable to the wider public, though give a good understanding of prevalent attitudes towards credit products.