From 1 September, MBNA, one of Britain’s biggest credit card issuers, will introduce a new debt repayment system that will allow its customers to make significant savings on repayment interests.
The move will see MBNA change the way it makes its customers pay off their debts. As the system stand, customers are forced to pay off their lower interest incurring debts, such as transferred debts at low or zero interest, before they can pay off the debts that are raking up much higher interests, which often incur interest costs of around 20%.
This practice, referred to in the industry as “adverse order of payments” system, affects an estimated 9 million consumers, costing them each around £225 a year. Of all the British credit card providers, only Nationwide and Saga does not resort to this practice.
Earlier this year, the government had talked of planned policy changes that would curb this practice, after a study showed that the majority of the cardholders were not aware of the “adverse order of payment” mechanism, and how it adversely affected their financial health. Since then, in a pre-emptive move, the credit card industry has agreed to put an end to this practice voluntarily, with the industry setting itself an end-of-year deadline.
Despite the deadline not being until the end of the year however, MBNA has stolen a march on its competitor with the announcement that it’s “systems will be ready to meet the new requirements” by September 1, at which point its customers will be able to reap the benefits immediately.
MBNA has also announced its intention of trying to ensure that the new repayment practice applies to its portfolio of more than 400 affinity brands, which includes the likes of AA, Amazon, Virgin Money, BT and Play.com.
According to Michelle Slade, affiliated with the financial comparison website Moneyfacts.co.uk, MBNA’s announcement is a welcome move that will save its customers a small fortune. One hopes that its competitors will take the cue for MBNA and institute their own reforms ahead to the end-of-year deadline.
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