MBNA increases minimum credit card repayments
MBNA's 5 million UK credit cardholders face bigger bills in move it says is 'the right thing for all our customers'
Credit card company MBNA is increasing the minimum amount customers must repay each month, in a move that will help people become debt-free sooner, but facing a sizeable hike in repayments.
MBNA, which has about 5 million UK customers, said today that from 1 April it would be changing the way it calculates minimum monthly repayments. These will be set at a minimum of 1% of the card balance, on top of which any interest and charges will be added.
The company introduced this method of calculation for new customers in mid-2009, and is now extending the policy to its existing cardholders. It said the change was "the right thing for all of our customers", and reflected the view of many consumer groups, experts and individuals that minimum payments are set too low.
MBNA said those regularly paying off only the minimum "could save significant amounts of money over time, and pay their balances off much more quickly" as a result of the change. But it accepted this may be "a significant change" for some cardholders.
For example, someone with 2,500 on their card, whose interest rate is 16.9% APR and who only ever repays the minimum, would see this payment jump from 37 to 57. For those with bigger balances the leap would be more sizeable.
"If you find yourself in financial difficulties, or if you are concerned that you will struggle to make your new monthly payment, you may want to discuss it with us," the company said. The changes do not apply to customers who are already behind with their payments for them, the new calculation will take effect once their account is back up to date.
MBNA added: "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. Onl! y a smal l percentage of our customers make only a minimum payment in any one month, and the number routinely making only minimum payments is even smaller."
Today's announcement comes weeks after MBNA was ordered to improve the way it deals with customers struggling with debt, following an investigation by the consumer watchdog. The Office of Fair Trading found the company's in-house debt collection arm was "not being sufficiently clear" when writing to customers who were behind with their payments and were offering small amounts they could afford to pay.
There were also cases where it was "failing to follow its own policy or procedures" when dealing with cardholders who had appointed a debt management company to negotiate on their behalf.
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