Some credit card companies have been undertaking significant changes to their card policy
. So why? And what is positive order of payments?
The unfair rule which allows providers to cleverly manipulate the allocation of payments clause will be axed in January 2011.
However, some credit card companies are changing their payment allocation policy but some other issuers have stipulated that their company's plans were already in motion before the government decided on their new regulations.
A negative order of payments has always been a nasty trap for consumers and extra money for providers. Cleverly trapping debt which has a high interest means that overall debt increases substantially. This tactic is most popular with balance transfer credit cards, where the low or even 0% balance transfer rate is paid off first and therefore before payments with much higher interests.
The debt not being paid off will be incurring enormous amounts of interest in the meantime. Nationwide claims that their balance transfer customers build up 224 of extra card charges per year because of this policy.
For this reason the allocation of payments clause should be considered when making a credit card comparison.
This is particularly true of instant decision credit cards since they can be applied for too quickly without checking them first.
However a recent reform has been agreed by the Credit and Store Card Review and the UK Cards Association. This series of new laws give customers more rights and room for negotiation. One of the key points of the reform was axing unfair order of payments. As of January 2011, debt with the highest rate of interest must be paid off first. Consumers should, however, be aware of the exact dates that their provider changes these policies. Many ill-informed customers could enjoy the freedom of this new law too soon and to their cost.
0% balance transfer credit cards will particularly benefit from a reform on the order of payments since there are several balances charging different rates of interest.
As they have already prepared the modifications, they see little point in postponing the policy change until January. Whilst this move could be seen as a positive one, showing that providers do really care about their customers, it might just be a reaction to the government's new laws on credit card positive order of payments clauses.