October 26, 2009
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News: UK Pole; Angry Citizens!
Americans have not been the only group of unsuspecting victims of the deceptive practices of the credit card industry, a recent report by moneysupermarket.com revealed that British citizens have also been duped. According to the report, a large portion of British citizens were not aware of how credit card companies applied monthly payments towards different interest bearing debt. This deceptive practice has left many Britons "angry" and "cheated" by the credit card industry. To their surprise, the majority of the moneysupermarket.com respondents didn't realize the method of applying payment was actually spelled out in the card's fine print.
Here's how it works. When a credit card customer buys into a marketing promotion that offers a reduced interest rate for a select period of time, i.e. zero percent for six months, his interest calculation will now include two lines. The first line, the original balance will be carried at one rate while the second line will show the balance transfer amount and rate. That old philosophy first in first out premise doesn't hold true when credit card companies apply payments to the two different lines. Lenders specifically target the lowest interest bearing balance to apply payment towards. This practice leaves does nothing in reducing the highest interest bearing debt ultimately adds up to more interest in the long run.
Britain's citizens do not stand alone in this battle; this same accounting practice exists worldwide. Many countries have begun taking measures that would prohibit this type of credit card debt repayment hierarchy system. The United States have new rules and regulations that will prohibit lenders from applying payments to the lowest interest bearing debt first and will demand payments be applied to the highest interest bearing debt. These new laws are currently due to become affective in February 2010; however, a new movement in the U.S. House of Representatives is expected to move the enactment date up to December 1, 2009. Britain's Prime Minister Brown announced in a statement on Saturday that British citizens can expect to see similar rules for their protection by the end of the week.