Persistent Debt new Credit Card Rules

D_M_E

Following on from this article

https://www.moneysavingexpert.com/news/cards/2018/02/new-credit-card-rules-to-help-those-in-persistent-debt

the new rules on persistent debt are now fully in force as from today.

https://www.fca.org.uk/news/press-releases/new-credit-card-rules-introduced-fca

This probably explains all the begging letters poeple have been receiving about increase in minimum payments recently.

Also, banks should now look at whether the cardholder is racking up interest and paying off little capital and possibly - I say possibly because I think they will take the view why should they lose profits - close the card facilities and offer cardholder a loan at a lower interest rate than the card.

This begs the questions:

1. If the cardholder cannot afford the current minimum card payments, how will they be able to afford the higher loan payments?

2. Will such loans, if offered, simply be an excuse to push the cardholder deeper into debt by consolidating existing debt, thus allowing the cardholder to continue racking up debt?

3. If cardholder has multiple cards carrying balances on which minimum payments are being made and a loan is made to clear each one, will we be seeing a vast increase in bankruptcy as a result of debtors being unable to meet the payment schedules set out?

4. If banks and other lenders face having their profits curtailed by such measures, will we see the end of free bank accounts and the like as banks etc try to appease their shareholders by making up thier lost profits from other sources?

jonesMUFCforever

Lenders will always make profits on cards as some people will never clear their cards monthly.
All the new regulations do is make it easier for you to get out of debt by repaying slightly more (after 18 months of minimum payments) per month.

Regarding your last point - I would be more worried about banks getting rid of free bank accounts to increase profits rather than replace what you said.

Dandytf

OP- These new rules could provide motivational.

18 mths-not every card balance will be cleared by myself.
Though certainly encouraging to raise dd payments+reduce spending.
I wish cc providers would themselves start by offering higher initial minimum payments-like Tesco-starting from £25 i.e. not 1-5% or £5 per month

Hopeless_Case

The minimum payment used to be 5% didn't it?

MBNA sent us a letter saying it would go up to 2.5% (it won't apply as we've taken control and transferred to a 0% card and are working on paying it off), so still not back to where it was

Dandytf

Hopeless_Case wrote: »

The minimum payment used to be 5% didn't it?

MBNA sent us a letter saying it would go up to 2.5% (it won't apply as we've taken control and transferred to a 0% card and are working on paying it off), so still not back to where it was

I suggested 1-5% from various cc providers.
Haven't quoted any named cards-just my own experience.

SnowTiger

D_M_E wrote: »

This begs the questions:

1. If the cardholder cannot afford the current minimum card payments, how will they be able to afford the higher loan payments?

2. Will such loans, if offered, simply be an excuse to push the cardholder deeper into debt by consolidating existing debt, thus allowing the cardholder to continue racking up debt?

3. If cardholder has multiple cards carrying balances on which minimum payments are being made and a loan is made to clear each one, will we be seeing a vast increase in bankruptcy as a result of debtors being unable to meet the payment schedules set out?

4. If banks and other lenders face having their profits curtailed by such measures, will we see the end of free bank accounts and the like as banks etc try to appease their shareholders by making up thier lost profits from other sources?

I think lenders have learned lessons. They've already been raked over the coals for money laundering, irresponsible lending, excessive charges, PPI and other things.

What lender in its right mind would set the wheels in motion today on another expensive scandal that will have a big negative affect them in five or ten years?

As for your first point: if a punter can't afford minimum payments now, they're also in financial crisis. Those who can just about afford them are probably just putting the inevitable off.

T-G-C

1. If the account holder cannot afford the minimum payment after an increase, the normal routine of speaking to the lender and pleading financial difficulties will apply. It will then be at the discretion of the lender as to what happens next.

2. Assuming you are talking about credit cards, no lender will issue a loan to the customer to clear the balance, even more so at a lower interest rate. Whilst a mainstream lender who offers loans, like Santander, might encourage someone to apply or pre-approve them, they cannot necessarily enforce it on them by transferring the credit card balance to another credit product, as this would require a separate credit agreement which the consumer is required to sign.

3. It will be at the discretion of the customer on whether to accept a debt consolidation loan and should the repayment schedule not be affordable, it should not be taken out. If ignored, the usual consequences are applicable as have always been.

4. Whilst some losses are expected due to less interest being charged in total than before the regulations were introduced, due to the time frame required before these measures are taken against the borrower, the figures may not be enough to cause the end of free banking or other large-scale impacts.

Hopeless_Case

Dandytf wrote: »

I suggested 1-5% from various cc providers.
Haven't quoted any named cards-just my own experience.

Sorry, I wasn't answering your post, I was just thinking that I can remember the minimum payment being reduced at some point (probably quite a while ago ) and i don't think they've put it back to where it was before, which may have been a more realistic level - I hadn't really appreciated minimum payments varied from card to card though

Rosemary7391

SnowTiger wrote: »

I think lenders have learned lessons. They've already been raked over the coals for money laundering, irresponsible lending, excessive charges, PPI and other things.

What lender in its right mind would set the wheels in motion today on another expensive scandal that will have a big negative affect them in five or ten years?

As for your first point: if a punter can't afford minimum payments now, they're also in financial crisis. Those who can just about afford them are probably just putting the inevitable off.

Or they're in a temporarily reduced financial situation and appreciate the flexibility that having a credit card brings. I had two strategies for covering the gap between my funding finishing and actually finishing my PhD - one was saving, the other was getting to a decent limit on my credit card. Admittedly I hope this won't last anything like 18 months, but it is something that bothers me - the more regulation like this we have, the fewer options there are for people in unusual circumstances.

chattychappy

Rosemary7391 wrote: »

but it is something that bothers me - the more regulation like this we have, the fewer options there are for people in unusual circumstances.

Yep, all this well meaning regulation has unintended consequences for certain categories of responsible people. I rather resent the attitude that people "like us" and our freedom to contract are the collateral damage of protecting the !!!!less* against themselves.

(*edit MSE thinks f-e-c-k-l-e-s-s is a dirty word... ironic really!)

Anthorn

D_M_E wrote: »

1. If the cardholder cannot afford the current minimum card payments, how will they be able to afford the higher loan payments?

Credit card lenders will not force a loan to repay the credit card debt since this will increase the persistent debt which the new rules are intended to reduce.

If a cardholder cannot afford the higher credit card payments credit card lenders will have to help them to reduce the debt by reducing "interest, fees and charges".

http://www.thisismoney.co.uk/money/cardsloans/article-5440179/New-FCA-rules-force-lenders-help-credit-card-customers.html

Therefore credit card lenders will lose profits as a result of providing credit to people who cannot afford to repay it.

However personally I should think that those who cannot afford to pay their credit card debts would consider such things as a DMP, DRO or IVA to be preferable.