Nationwide reveals £500 million credit card sting

22 February 2005
Research by Nationwide has revealed that credit card holders are being stung for up to £500 million a year owing to card providers' refusal to let them pay off their most expensive debt first.

The vast majority of card providers use their customers' monthly payments to pay off smaller, low-interest debts first, leaving higher rate balances - such as purchases and cash advances - to continue to accrue interest.

Nationwide's research claims that ten million UK accounts are subject to this kind of pay-off pattern, leading holders to pay more interest than necessary and flying in the face of debt counsellors' advice.

"This is a policy that enables the banks to make half a billion pounds of profit every year - or £50 per year for every credit cardholder affected," states Stuart Bernau, the executive director of Nationwide.

"Any debt counsellor worth his salt would tell you to pay off your most expensive debt first, yet most credit-card providers do exactly the opposite. When you make a payment, they apply it to the cheapest debt first."

Nationwide's research comes after an attack on credit-card companies earlier this month by the Treasury select committee, chaired by John McFall, MP for Dumbarton.

The committee advised that penalty charges for late payment and exceeding credit limits should be made clearer to consumers.

MPs are also campaigning for interest rate calculations to be made more transparent.

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