Credit card customers unwittingly pay £500m

With 12 months to go before regulation forces credit card providers to draw attention to the order of payments they use, Nationwide Building Society urges them not to delay, and provide the clarity consumers need now.

Nationwide has campaigned for many years for increased transparency on credit cards. The Society welcomed the announcement made in April by the Department for Business, Enterprise and Regulatory

Reform (BERR) requiring providers to display a message on every credit card statement highlighting how payments are allocated from October 2008.

Unlike Nationwide, almost all credit card providers allocate cardholders' payments to the cheapest debt first, allowing the more expensive transactions to continue to accrue interest - increasing the cost the consumer has to pay. This practice is not well understood by consumers and is adverse to their interests. In fact, Nationwide estimates that consumers could pay another £500m in interest payments before providers have to highlight the order of payments they use next year.

Nationwide allocates payments received from its credit card holders in a way that is favourable to them and pays off the more expensive parts of their credit card debt first.

Nationwide director, Jeremy Wood, said: "Most providers apply payments to the cheapest debt first making it more expensive for the consumer and more profitable for themselves. What seems like a good deal at first can become unnecessarily costly for cardholders unless they clear their balance in full.

"We welcome the move by the BERR to help gain more clarity for consumers, by displaying a message explaining the order of payments, but we call on the industry to do the right thing for consumers and implement the change now, rather than wait until the October 2008 deadline."