Should minimum payment be more than interest charged?

jillydp

My husband has a Santander credit card and when I looked at the statement this morning I discovered that the minimum payment that is taken by direct debit does not even cover the interest payment so our debt is increasing !!! Is this legal??? I can only find one reference on google to the banking code and I'm not sure if it refers to the US or the UK. If it isn't legal how should we address this issue with Santader. Any help and advice gratefully received!

_Andy_

Nothing to stop you paying more than the minimum.

Fiddlestick

jillydp wrote: »

My husband has a Santander credit card and when I looked at the statement this morning I discovered that the minimum payment that is taken by direct debit does not even cover the interest payment so our debt is increasing

Can you pay more?

opinions4u

Perfectly legal.

If it was illegal they would simply raise the minimum payment required and carry on charging the same rate.

So the simple solution is for your husband to make sure he pays more. Otherwise the debt will rise until it hits the credit limit and Santander force him to pay more!

The solution is in his own hands. No need to worry about legislation.

CLAPTON

it does seem quite wrong that regulation allows a situation where the minimum payment allows the debt to increase; however it's really easy for you to pay more.

in any event, even if it did decrease the debt, paying the minumum is pretty daft as the the debt will take years and years to pay off.

chattychappy

According to the Lending Code, in general minimum repayments should exceed interest charged. See para 100 to 104.

http://www.lendingstandardsboard.org.uk/docs/lendingcode.pdf

NB: it is "legal" not to follow the code - but it would be frowned upon by a regulator if a consumer suffered a detriment as a result and complained.

opinions4u

CLAPTON wrote: »

it does seem quite wrong that regulation allows a situation where the minimum payment allows the debt to increase; however it's really easy for you to pay more.

I'm quite comfortable with the concept of interest exceeding payment. It gives the customer choice and flexibility over how they manage their finances. That said, too many customer simply aren't close enough to their finances to do this and as such need a little bit of education.

I do think a rather clear bold print message on the statement saying "YOUR DEBT WILL INCREASE IF YOU ARE ONLY PAYING THE MINIMUM PAYMENT" would be reasonable though.

CLAPTON

opinions4u wrote: »

I'm quite comfortable with the concept of interest exceeding payment. It gives the customer choice and flexibility over how they manage their finances. That said, too many customer simply aren't close enough to their finances to do this and as such need a little bit of education.

I do think a rather clear bold print message on the statement saying "YOUR DEBT WILL INCREASE IF YOU ARE ONLY PAYING THE MINIMUM PAYMENT" would be reasonable though.

yes there is always a contradiction between offering people choices and forcing them to do the 'right' thing.

It this situation I feel the most appropriate way foreward would be for the minimum charge always to be sufficient to stop the debt rising (so the sum od interest PPI charges etc) but maybe with an option to make a specific choice to opt out.

chattychappy

opinions4u wrote: »

I'm quite comfortable with the concept of interest exceeding payment. It gives the customer choice and flexibility over how they manage their finances. That said, too many customer simply aren't close enough to their finances to do this and as such need a little bit of education.

I do think a rather clear bold print message on the statement saying "YOUR DEBT WILL INCREASE IF YOU ARE ONLY PAYING THE MINIMUM PAYMENT" would be reasonable though.

Agreed. But now we seem to be in a spiral - the more regulation and "nannying" brought in to "protect" consumers, the less responsibility they take. And then they find themselves in trouble anyway and feel licensed to look to the panaplea of complaints procedures, ombudsman, debt charities etc to get them off the hook.

Joe_Bloggs

MSE Martin has a minimum payment calculator here that reveals the how long it could take to pay off a card. Thirty - forty years is not uncommon if you only pay the minimum. Some say that just paying off the minimum gives the lender the impression that the debt is out of control.
J_B.

Fiddlestick

Joe_Bloggs wrote: »

Some say that just paying off the minimum gives the lender the impression that the debt is out of control.

I'd be willing to accept that.

Why else would there be an option for lenders to mark that you are only making the minimum payment on your credit file?