Virgin Money UK in September plans to begin enabling cardholders to pay off the highest rates applied to their card debts first, the United Kingdom-based financial company announced earlier this week. This change comes on the heels of a joint agreement by the UK Department for Business Innovation and Skills and the UK Cards Association regarding cardholders’ rights.
The credit card agreement goes into effect in January. Among the provisions, UK issuers must allow cardholders to pay off their highest-cost debt first and not increase credit to cardholders having financial difficulty (see story).
Virgin Money, whose cards are issued by Bank of America Corp., was unable to provide comments about its policy change by PaymentsSource deadline.
In a press release, the company estimates the policy change will save cardholders an average of 70 British pounds (US$105 or 85 euros) per year. It based the savings estimate on customers who transfer a 3,000 pound balance to a Virgin Money card at a 0% promotional rate and then spend 1,000 pounds at a higher standard rate on the card over one year.
These payment changes will begin Sept. 1 for all of the issuer’s credit cards, including the Virgin Money Credit Card, which offers a 0% introductory balance-transfer rate for 14 months and 0% interest on card purchases for three months.
The cash-back Charity Credit Card also is included. Virgin Money charges an 8.9% rate on balance transfers until the transferred amount is paid off.
The issuer’s switch in which card debts customers’ payments apply to first should not have been a surprise to most UK issuers, Matt Simester, director of Auriemma Consulting Group in the United Kingdom, tells PaymentsSource.
As for Virgin Money deciding to switch its policy before January, “Bank of America has taken a more consumer-oriented approach in the UK,” he says. “So it’s not a surprise that Virgin Money would be interested in switching its payment hierarchy so quickly.”
For other issuers making the switch to abide by the joint credit card agreement, “they should not only talk about it through press releases but through call-center agents because consumers don’t really understand (payment) hierarchies,” Simester suggests.
Virgin Money may gain more customer loyalty by implementing the new payment scheme early, Simester notes. Consumers with multiple credit cards in their wallets from various issuers are most likely going to use their Virgin Money card for purchases because it charges less interest, Simester surmises.
“It will be interesting to see how other issuers respond,” he says.