Following MoneyExpert.com’s announcement that three-quarters of credit cards pay off the cheapest debt first, Nationwide Building Society calls for a positive order of payments to be introduced on all credit cards.
Research from the Society reveals that seven out of ten (69%) of those questioned do not know the correct order in which their repayments are allocated to their account. However, two-thirds (66%) of credit card holders think it is important to find a credit card provider that allocates their repayments to the most expensive debt first. On average people stay with their credit card provider for six years – even if the proposition is poor – suggesting that providers are taking advantage of their customers’ apathy. Nationwide has calculated that apathy about order of payments alone costs consumers £500 million each year.
Nationwide is the only card provider to operate a positive order of payments, which means the most expensive debt is paid off first – unlike its competitors who choose to leave items with high interest, such as cash advances, to continue to accrue interest and be cleared last.
The Department of Trade and Industry recently announced that, from 1 October 2008, all credit card providers will have to draw attention to the order of payments they use. While this is a step in the right direction, Nationwide believes it does not go far enough as order of payments is not well understood by consumers, and is adverse to their best interests. Nationwide, therefore, calls on the industry to make changes now and treat their credit card customers fairly by adopting a positive approach to their order of payments.
Jeremy Wood, divisional director at Nationwide, says: “Nationwide has long-campaigned for a positive order of payments for all credit card customers. 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. Most providers apply repayments to the cheapest debt first making it more expensive for consumers and more profitable for the credit card companies.
“Something needs to change as it’s unacceptable that over two-thirds (69%) of credit card holders do not know how their payments are allocated.”
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