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Credit card providers profit from payment allocation

Fri, 09 Jun 2006

Credit card providers earn by allocating payments to a credit card holder's cheapest debt, according to a leading bank.

Many credit card providers allocate payments with outstanding balances at lowest interest rates, which include 0% balance transfers and other such offers.

These can leave balances to accrue interest at higher rates, which will subsequently lead increased profits for the credit card provider.

Stuart Bernau, executive director at Nationwide, commented: "Many credit card providers use low introductory rates to lure people into opening an account.

"These offers can look very appealing, but when you scratch beneath the surface you discover that credit card holders often don't receive the full benefits of these low rates."

He added that: "Most providers apply repayments to the cheapest debt first, making it more expensive for you and more profitable for them."

Mr Bernau hence called on the industry to apply card repayments to the most highest charging debts first.

Today, a new survey from Motley Fool suggested that unlawful credit card charges are being claimed back by only 11 per cent of British consumers.

Around 39 per cent further stated they were unaware of the illegality of bank and credit card charges.

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