Nationwide welcomes Credit and Store Card Review

Nationwide Building Society welcomes the Credit and Store Card Review to be published by the Department of Business, Innovation and Skills (BIS). The review focuses on a number of important credit card practices within the industry including order of payments. Nationwide has regularly called on the UK credit card industry to abandon the practice of adverse order of payments. The cost to UK consumers of this practice is estimated to be around £500m. In the US, credit card providers are already changing their approach in order to meet recent consumer legislation. Nationwide has always allocated credit card payments in a positive way.

Currently, almost all credit card providers in the UK allocate payments in an adverse way. This means that the cheapest debt is repaid first and the most expensive debt last. In a market environment where more and more consumers are facing the challenge of managing their debts, this practice will affect many of the most vulnerable consumers. Some will be using 0% balance transfers to consolidate debts or to reduce their monthly interest charge. Some may even be using their credit cards as a source of cash when other options are not available. In these circumstances an adverse order of payments means the higher interest debt, such as cash advances, remains on the account for longer while cheap debt, like 0% balance transfers, is repaid first.

Individual consumers could save up to £224 in the first year if other credit card providers used a positive order of payments in the way that Nationwide does. At the same time, Nationwide estimates that overall, UK consumers would save around £500m if all credit card providers adopted a positive order of payments.

Nationwide's product and marketing director, Chris Rhodes, said: "We are delighted that BIS have included order of payments in the review. We think all UK credit card providers should allocate payments in a positive way. The US has already recognised that the practice of paying the cheapest debt first is unfair to customers and is forcing lenders to be more consumer friendly.

"Nationwide has always operated a positive order of payments as we recognise that an adverse order of payments penalises the most vulnerable customers, who can ill-afford additional interest charges, especially in the current climate. It's time that the extra debt burden created by this practice was lifted from UK consumers."

Michelle Slade of Moneyfacts said: "It's really important for consumers to be aware of policies which affect the way they manage their finances. Sadly, consumers are generally unaware that most credit card providers apply their payments to the cheapest debt first. There is an interesting contrast between this practice and the usual advice that a consumer would receive from debt agencies, which is to pay off the most expensive debt first. A change to this policy would be a real step forward for consumer fairness in the credit card market."