‘Nationwide campaigns for positive order of payment’

December 12, 2007 at 10:45 am

The vast majority of all credit card providers operate a negative order of payment, meaning that your monthly repayment is used to pay off the cheapest debt first, leaving such items as cash advances (which attract a high interest rate), to accrue yet more interest. This may be good news for the provider’s profits but it’s certainly bad news for the consumer.

The Department of Trade and Industry (now known as the Department for Business, Enterprise and Regulatory Reform]) has announced that as of 1st October 2008 all providers will have to make clear to the consumer how the repayments are allocated. The following words must, by law, appear on each statement from next October: “If you do not pay off the full amount outstanding we will allocate your payment to the outstanding balance in a specific order, which is set out. The way in which payments are allocated can make a significant difference to the amount of interest you will pay until the balance is cleared completely.”

Nationwide claims to be the only credit card provider currently operating a positive order of payment and is campaigning to have other providers follow their example. They do not feel the DTI proposals go far enough and would like to see the statutory message preceded by the word “Warning,” as well as having the rates set out in the same place as the message, so that consumers do not have to go hunting for the information. They would also like the message to appear only on statements where the negative order of payment is relevant to the customer.

The divisional director of Nationwide, Jeremy Wood, says: “Many credit card providers use low introductory rates to lure people into opening an account. These offers can look very appealing, but when you scratch beneath the surface you discover that credit card holders often don’t receive the full benefit of these low rates.”

The “0% on balance transfers” is a common carrot dangled at the consumer, but an example of the type of situation where Jeremy Wood feels that consumers should be exercising caution. For example, if you were to transfer your balance across and withdraw £100 in cash you would receive a statement showing the balance transfer and the £100 cash withdrawal. If you paid off the £100, knowing that it attracted interest, and did not use your credit card again, you may be surprised to receive a statement the following month, still showing the £100 cash withdrawal (notching up interest) but a reduced amount on the balance transferred.

66% of us think it is important to find a credit card provider who operates a positive order of payment, and yet 69% of us do not have a clue as to how our own repayments are allocated. Nationwide reckons that this ignorance, combined with a large dose of apathy, costs us a staggering £500 million a year. The average person keeps the same credit card for six years, regardless of whether or not they are getting a good deal, and armed with this knowledge, there seem to be a lot of providers out there who are using this to their advantage.

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