Minimum payments to increase for MBNA customers
CREDIT card behemoth, MBNA, have announced plans to increase the minimum amount their customers must pay each month.
Although at least some of MBNA's five million cardholders may vehemently disagree, the company says that an increase in monthly minimum card repayments is "the right thing for all our customers".
It helps, of course, that credit card providers have been forced to make the change under new rules agreed between credit card providers and the Government which came into effect last month.
MBNA issues its own range of credit cards as well as those of Abbey, Alliance & Leicester (now owned by Santander) and Virgin Money and the changes will be rolled out across all these brands.
However, although an increase will help credit cardholders get out of debt more quickly (indeed, as we note here, there's good reason to pay more than the minimum) it could hurt those unable to make the repayment at the new, higher, rate.
Defaulting on a credit card account can lead to fees and the withdrawal of any special offers on the account, considering that those unable to pay are also highly likely to be those with severe debt problems.
Existing customers affected
The new system will require a payment of at least 1% of the card's balance with any charges and interest added on top of that.
New customers have been subject to that calculation since mid-2009 but from April 1st the company will also be applying it to existing customers.
In 2009, the provider's spokesperson said: "From a customer's point of view, the change is a good thing as the more debt they pay off, the better, but clearly, if some people can't afford to pay [the new minimum repayment] then they can come to us and we'll try to resolve it."
The company's more recent application of its minimum payment plan had a similar justification and a similar offer of help.
Problems for those in debt
MBNA said that as a result of the change, its customers, "could save significant amounts of money over time, and pay their balances off much more quickly".
While this is theoretically a good thing, however, it will prove problematic for MBNA customers who have large outstanding balances on their cards.
A cardholder with a £2,500 balance on a card with a 16.9% APR will see their minimum payment increase from £37 to £57 - a sizable leap for someone already struggling to meet payments.
Indeed, in 2008 card providers halved their minimum repayment amounts to make it easier for cardholders to repay debts.
The company accepts that the increase may be "a significant change" for some of its cardholders, and encourages those who are struggling to get in contact. Those who are already behind with payments will not be subject to the changes, unless they manage to bring their account back up to date, in which case they are fair game.
A spokesperson said: "For most cardholders who either pay their credit card bill in full every month or pay more than the minimum, the change will have little or no impact.
"Only a small percentage of our customers make only a minimum payment in any one month, and the number routinely making only minimum payments is even smaller."
MBNA's announcement follows recent criticism over the way they deal with customers in debt.
The Office of Fair Trading ordered the company to improve the procedures of its debt collection arm after an investigation revealed that it was being wilfully obscure when dealing with customers who had fallen behind with repayments and had offered smaller monthly amounts that they could afford.
It was also accused of bypassing cardholders' appointed debt management companies and contacting them directly.