Order of payments confuses credit card users

by Gill Montia

Story link: Order of payments confuses credit card users

Which?, the consumer group, has been highlighting concerns about the order of payments (OOP) system operated by UK credit card providers.

OOP refers to the sequence in which a credit card bill is paid; for the consumer it is most advantageous to have the most expensive debt paid first.

For example, a credit card holder may have transferred a balance at 0% interest and then go on to withdraw a small amount of cash on the card, expecting to pay this off when the monthly statement arrives.

When making that payment, the card holder believes he or she is paying off the cash withdrawal (on which interest is being charged) but the credit card provider uses the payment against the balance transfer and the cash withdrawal appears on the following month’s statement, with interest accrued.

Credit card providers using this method are operating what is known as an adverse order of payments.

Recent research suggests that two-thirds of credit card account holders do not actually know their OOP, when in fact an adverse order of payments can prove expensive.

There are also reports that some credit card providers have introduced an adverse order of payments without first making the impact of this clear to their customers.

Which? is calling for transparency over OOPs and has been joined in its campaign by Nationwide.

Nationwide estimates that adverse orders of payment cost consumers a total of £500 million each year.