Labour pledges new law for millions trapped by credit card debt

Credit card firms would be forced to write off billions of pounds in long-term customer debts under a Labour government.

Shadow chancellor John McDonnell is expected to propose at the party's conference that no credit card debtor will have to pay back more than double what they borrowed.

He will say the policy will help more than three million credit card holders who are "trapped by their debt".

The average amount of credit card debt for accounts in persistent debt is £3,464, with the total amount owed by customers in this category totalling £14bn.

They pay about £2.50 in interest and charges for every £1 borrowed, according to the Financial Conduct Authority (FCA) watchdog.

The regulator has estimated that lenders would lose up to £1.3bn a year as a result of the new plan, which raises questions over whether the cost of the policy would end up being passed to other borrowers.

The regulator says 3.3m people are in continuous debt, which it defines as having paid more in interest and charges than they have repaid of their borrowing over an 18-month period.

McDonnell will tell the party's Brighton delegates: "The Financial Conduct Authority has argued for action to be taken on credit card debt as on payday loans.

"I am calling upon the government to act now and apply the same rules on payday loans to credit card debt. It means that no-one will ever pay more in interest than their original loan.

"If the Tories refuse to act, I can announce today that the next Labour government will amend the law."

Consumer credit debt, which includes credit cards, personal loans and the use of overdrafts, hit £200bn earlier this year for the first time since 2008.

The FCA proposed in April that credit card firms prompt customers who have been in persistent debt for 18 months, to make faster payments.

The watchdog added that customers who do not respond, or refuse to take up new repayment plans, will have their cards suspended.

Liz Truss MP, chief secretary to the Treasury, said: "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."