Should we License Credit Cards in the UK



In the UK, the general rule of thumb is that if it can hurt you, it’s regulated. For example, there are lights on every street corner, and walks that you’re supposed to use when crossing the street. Cars are required to be operated according to posted speed limits, and are restricted from driving in some areas altogether. In fact, to even operate one, you need a driving permit, and that takes time and classroom work to earn. Doctors are regulated, the food we eat is held to high standards of safety, and our children are taught by teachers with degrees in education.

Why then aren’t credit cards regulated?

Almost any UK resident can easily get a credit card, even if they have no history with the credit reporting agencies. They just need to show employment, and have about £1,000 in a current account. Then, they can reasonably expect to apply for and receive a low limit credit card. With that credit card, they can get another. They can keep getting credit cards until they have so many credit cards that destroying their life is just a matter of carefree spending, sponsored by High Street.

Families have lost their homes, children have gone without lights or food, and people have pawned their lives away because of credit card debt. In fact, right now there’s supposedly a payday loan crisis in the UK that appears to be unwinding, but it really isn’t. The problem hasn’t even been addressed, because no one is looking at it. The media spotlight is on payday lenders, with MPs having a dog and pony show about the nothing they’re trying to sell as a positive change by increasing payday loan regulation. The fact is, unregulated credit cards are the problem, not payday lenders or the people using them.

Banks don’t care though.

They know the problem is with credit cards, but they do nothing to educate consumers. It’s not in their interests. Enough people pay their interest that the banks still come out ahead. Even though High Street wrote off £5.32bn of credit card debt in 2010, according to the Bank of England, they’re still happily handing out credit cards. (Source: BBC) If the associated debts were really a problem, banks would educate consumers. They don’t want educated consumers though. An educated consumer isn’t going to sign up for absurd interest rates. That means banks won’t profit, leaving them zero incentive to educate anyone.

Consider that in 2010, the entire educational budget for the UK was £88.3bn, which means that the credit card debt write off in that same year was equal to more than 6% of the amount spent on education. Imagine what banks in the UK could do to offset their losses, if they just spent even a fraction of the debt they write off every year towards improving financial literacy in the UK. They won’t though, because those losses are insignificant in comparison the profits High Street sees from financially illiterate consumers.

That’s why we need some regulation.

Credit cards aren’t a status symbol. They’re the first sign of a scammer pulling the wool over on an unsuspecting victim. It’s how banks remain profitable. Forcing a system of regulation on High Street would significantly curb existing financial illiteracy in the UK. More importantly, it would actually teach people about finances. Just like a person can’t get a license for an auto if they can’t pass a driving test, they also shouldn’t be able to get a credit card without passing a financial test.

Not instituting some sort of licensing policy is just absurd. Everything our money supports is licensed. We can’t spend money on an unlicensed doctor, an unlicensed lawyer, or an unlicensed company. If we do, we know going into things that we’re getting involving in something a bit dodgy. Therefore, if unregulated things that can hurt us are considered dodgy, then unregulated credit cards are also dodgy. It’s time to wake up to the reality of credit cards.

They aren’t licensed, and they’re a bit dodgy.

More than being dodgy, credit cards are an outright scam. In exchange for agreeing to pay absurdly high interest fees, you get to use money you don’t have, and can’t absolutely guarantee that you’ll ever be able to pay back. Make a mistake or miss a payment, and you’ll be hit with massive late fees. When those late fees push you over your limit, even though you didn’t charge over the limit, you’ll get another penalty for going over your limit. In the space of a single missed payment, you can add £50 or £100 to an existing debt.

That’s dangerous, and it’s exactly why credit cards should be licensed. Not licensing them or compelling banks to educate consumers before handing out credit cards will just worsen the existing epidemic of financial irresponsibility in the UK. High Street isn’t going to voluntarily change anything though. They’re making too much money off the ignorance of everyone else.

Ask an MP though, and they’ll tell you that High Street is licensed, which somehow makes it ok to hand out credit cards like candy. A proper reform would be requiring the same level of oversight to obtaining a credit card that’s required to operate a car.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

3 Responses to Should we License Credit Cards in the UK

theFIREstarter says...

Interesting idea! Licencing credit cards may well work but I have to severely doubt how much good simply trying to educate people on the dangers of credit cards. Anyone with a bare pass in GCSE maths should be able to work out that paying 15%+ interest is not a good deal but they want their shiny new toy NOW and that overrides all rational logic. You can’t teach people to overcome that impulse (or if you can it will take a lot more than a few ad campaigns and leaflets doled out by the gov/banks)

October 23, 2014 at 6:13 am

Richard says...

If this blog is all about UK (and related EU/international) banking and financial issues — why is it written in American and not English.

In another article, the standard of English of several banks’ websites is complained about …. yet this blog itself is not in “English” English 🙂

October 27, 2014 at 12:42 am

Paul Spencer says...

Hello Richard,

I was born and grew up in USA but I have lived in London for over 10 years now. I do try and write in “English” English but evidently some American phrases are slipping through 🙂

October 27, 2014 at 9:29 am

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