MSE News: Credit card firms could be forced to help customers in persistent debt

phillw

jamesd wrote: »

As I've explained in my earlier replies, the FCA seems to be requiring a one card at a time approach that disregards a person's overall cost of credit across multiple products and product types. This will then in many cases cause the cheapest credit source to be restricted as consumers correctly choose to pay off the most expensive borrowing first, if any debt reduction is sensible, remembering that debt can be profitable not loss making overall for a consumer.

The way I read the article, the new rules only applies to people who don't have a cheap credit source. If you are shifting money around on 0% then you won't be affected.

"Under the FCA's definition, credit card customers are in persistent debt if they have paid more in interest and charges than they have repaid of their borrowing over an 18-month period."

If the transfer has a fee & they treat that as a "charge" (which they may not), the minimum payment should cover it.

jamesd

I'm not replying to the article but to the FCA consultation document that I'm quoting from.

That's true if you have ample new credit available, so you can regularly completely replace borrowing on one card with that on another.

Where it's an issue is if you can't do that, say in the snowballing case where you're already likely to have difficulty getting new credit. Then at 18 months the threats from your cheapest debt cards where you're correctly making only minimum payments may start, depending on the balance between interest rate and minimum payments, and at 36 months the restrictions and punishments start.

You can try to game the rules and I expect that to become the standard advice in MSE and all other debt management advice places. In effect you have to, or pay more interest while snowballing to reduce your debt most efficiently.

Got to "love" a world where to reduce debt most efficiently you may have to game FCA rules that are supposed to be there to help those with problem debt.

jamesd

Of course as a stoozer I may have to systematically game the rules since my objective is not to reduce the principal balance at all and I will pay balance transfer charges, life of balance deal interest or even purchase interest sometimes. With no balance reduction at all and anything in charges and interest a stoozer might be affected just like those snowballing across multiple cards and loans. Depends on the actual rules and I'm not that far into the document yet.

For stoozing purposes if it's just payments made rather than balance reduced, life is pretty easy. A few weeks back I got:

1. Card A offering me a lower life of balance deal than I already had for some money on that card.
2. Card B offering me a decent 0% interest term and fee combination for both balance transfer and money transfer.
3. Both offering me higher credit limits, which I naturally accepted, not being inclined to ignore gifts of free profit.

Cue balance transfer of many thousands of Pounds from A to B then B to A cut the rate on A plus some money transfer to B to extract the extra credit.

But stoozing is just incidental, not what the rules are about. It's those with actual debt problems that the rules are supposed to help and will sometimes instead harm if they aren't tweaked to be more selective. Stoozers will just game the rules regardless and have the money to do it because it wasn't spent, maybe at the cost of reduced profit.