MBNA Increase in minimum pmt

Stuckintrap

I'm new here, so would welcome any positive feedback.

Closed MBNA acct some 12 months ago, and paying min pmt monthly to clear but making very little progress, this I accept, currently paying £170 per month at 20.1%, now they have moved goalposts, new payment will be approx £280.00. Is there anyone out there who can suggest a plan to counter this change.

Is this change something that can be challenged?

Recently I heard there was something about challenging rate increases, can anyone steer me in right direction?

chattychappy

It's a pretty new thing and I'm not aware that anyone has challenged it. If you have been in difficulty and have agreed a plan with MBNA, then I don't think the change will apply to you.

Personally I think it could be challenged and perhaps the OFT will do something if they get complaints. (I feel it's more of an OFT issue than an FOS matter - though individual complaints would end up with the FOS.)

For many, the change could double or triple their repayments. Paradoxically it's worse for people on low interest rates - the rise in minimums is proportionately worse.

In some cases it will result in earlier default by people who probably would have defaulted anyway. In other cases people borrowed on the basis that they could service their debts and wouldn't default but for this change.

Suggest you have a read of some of the existing threads:
https://forums.moneysavingexpert.com/discussion/3044966
https://forums.moneysavingexpert.com/discussion/3048604
https://forums.moneysavingexpert.com/discussion/3047988
https://forums.moneysavingexpert.com/discussion/3047930

Money_Man

Apply for another card to switch the balance?

izools

You now have to pay 1% of the balance + interest and charges. This is as per the government initiatives which suggest to credit card companies their minimum payment actually effects a notable change to the capital owed save customers who rely on the minimum payment never actually getting out of debt.

If you owe so much you can't even afford 1% of the capital + interest each month you should consider a reduced payment plan as clearly you are suffering financial hardship and / or have borrowed beyond your means.

The government initiatives ensure that borrowers in a situation like yours are more aware of their predicament and should prompt them to take more effective action regarding their debt.

chattychappy

Money_Man wrote: »

Apply for another card to switch the balance?

This could help - and it would always be better to get a lower interest rate. We don't have the all the data from the OP (his current balance/min payment formula) but any other card would have the same minimum payment requirement as the new MBNA regime or require even more. So whilst the interest element could be less, I'm guessing the OP would still face a significant increase in minimum payment by switching cards.

The only other "other card" solution I can think of would be to do monthly BTs for that part of the MBNA minimum the OP can't afford under the new regime. It doesn't matter how you meet a minimum payment - a BT counts.

Of course potentially this only "delays the evil moment" as the minimum required starts increasing on the second card. Could be expensive too depending on BT fees and the APR on the second card. But provided the OP is still paying an amount in excess of interest charges and fees (eg BT fees) then the debt is going the right way.

izools

chattychappy wrote: »

The only other "other card" solution I can think of would be to do monthly BTs for that part of the MBNA minimum the OP can't afford under the new regime

I don't normally disagree with you but this, to me, sounds like awful advice!

Robbing peter to pay paul, and instead of clearing a minuscule amount of capital, clearing none, all the while accruing more interest that was previously being incurred (potentially).

If OP can't get a BT to a 0% card they should do a budget and work out a way to pay MBNA, save calling them to arrange a reduced payment plan whilst suffering financial hardship.

chattychappy

izools wrote: »

I don't normally disagree with you but this, to me, sounds like awful advice!

Robbing peter to pay paul, and instead of clearing a minuscule amount of capital, clearing none, all the while accruing more interest that was previously being incurred (potentially).

Yep not my proudest post. It is like robbing peter to pay paul and I hesitated because of the obvious temptations of such a scheme. But perhaps I wasn't clear exactly what I meant.

I didn't mean the OP to be "instead of clearing a minuscule amount of capital, clearing none" and only if the second card had a higher interest rate would the overall amount of interest be higher (relative to the current regime).

The OP is currently paying £170 and MBNA will soon want £280. It is obviously ideal if the OP can meet the new £280 but it seems s/he can't.

One option is to contact MBNA. If the OP is distressed, then they might agreed to continue the current regime as an arrangement - but the OP's rating will be trashed - and still the capital won't be reduced.

Alternatively, the OP pays MBNA £160 directly, and BTs £120. So the new MBNA minimum has been met (£280). The OP then has to send a smaller (but rising) payment to the second card.

Assuming each month the OP pays at least £170 across both cards, plus the BT fees, then s/he is not falling behind relative to the position today. In month 1, this would mean at least £10 to the second card + BT fee. This would be well in excess of the minimum on that card. The overall contribution to capital will be no less than it is today. This assumes the interest rates on both cards are the same. It is true that the balance on the second card is rising, but only to the extent it is falling on the MBNA card beyond what it would otherwise be. So as time goes on the OP would be paying more to the second card and less to MBNA.

The monthly BT fee is an issue - the amounts involved are rather small by BT standards and I believe most BT fees are subject to a minimum.

I don't like this solution, but for the price of the BT fees, it does have the effect of preserving the current regime until such time as the OP can make additional payments.

I agree that if the OP is struggling so much as not to be able to knock back the capital than budgeting is the way to go. Just took that as read really.

izools

Fair enough.

Just my personal ideology that in a situation like that it's better to appraise the creditor with a view to them freezing / reducing interest making it cheaper to reduce the capital :beer:

Obviously credit rating would be affected whilst such an arrangement is in place but this should be immaterial as those in a situation like this shouldn't really be looking at securing extra spending power anyway

IMHO.

chattychappy

What we need to know is what MBNA are doing with people who call them up. I had the letter yesterday and the example they give shows the minimum payment more than doubling.

I can imagine there must have quite a deluge of calls. I also wonder if their compliance department has done a regulatory risk assessment - this whole thing does seem dodgy. I believe they have made similar changes in the US and I think this is part of the impetus for the change. Also they have had scrapes with the OFT before on how they treat people with debt problems so they should be treading carefully.

If they do offer interest reduction or reduced minimum payments then it could be well people calling them up even if it does mean trashing a rating. On the hand, if people are in all honesty are living within their means but the timing of this change provokes a default which would otherwise not occur, then I'd avoid speaking to them.

izools

It wouldn't cause a default. A reduced payment plan simply places an "Arrangement" marker against the account entry on the credit file.

The payments themselves should be marked as either unclassified (i.e. neutral effect on credit) or paid up to date.

My mother had a Barclaycard in a reduced payment plan for seven years with no interest incurred in this period and it hasn't affected her credit worthiness atall. She took it out of an arrangement in July and has just been approved for a First Direct account with Overdraft and Credit Card.