Credit card revolution - take 2

by Ed Bowsher on 02 July 2009  |  2 comments
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A new review of credit card regulation has been announced. That's a good move. I just hope the talking doesn't go on too long. We need to ban the most devious credit card trick of them all.

So it turns out 'The Times' was only half-right which is a shame. The newspaper said this morning that today's White Paper would  include a ban on the biggest credit-card rip-off of them all - negative payment hierarchy.

Sadly, no ban has been announced. But the government is launching a consultation on the regulation of credit cards and store cards. That consultation will include negative payment hierarchy. That's a good first step, and hopefully it will lead to a ban on this nasty practice before too long.

If you don't know about negative payment hierarchy, here's how it works:

Let’s say I make a 0% balance transfer of £1000 to my credit card, then make a purchase of £500, for which I am charged 18.9% APR. I then decide to pay £500 towards my card.

A card that operates negative payment hierarchy allocates this payment to the promotional balance transfer, and not my purchase, which continues to rack-up lots of interest.

In short, cards which operate negative payment hierarchy pay off the cheapest debts first, such as promotional balance transfers, and the most expensive, such as cash advances, last.

Today's White Paper also includes the widely-trailed clampdown on credit card cheques. That's welcome. On top of that, the Office of Fair Trading will review high cost lending such as payday loans and door step lending. I just hope that these reviews don't take too long. It's pretty obvious what the answers should be. We need action, not just words.

More: The biggest credit card rip-off of them all   |  The lovemoney.com charter for credit card justice