MT Week - Credit card shake up, repossession bans and payment holidays
Your top stories of the week…
Big changes are on the way for credit card users
There are big changes coming in this year for credit card users, some of which are concrete and some are still speculative at this stage.
First, there’s a shake up of the terms and conditions at Barclaycard, which will mean higher minimum payments for many of its customers - existing customers were warned in November last year but the changes will also apply to new customers.
The changes affect Barclaycard’s Forward, Platinum, Cashback, Freedom, Hilton Honors and Barclaycard Rewards card customers. Its Premier, Barclays Infinite and Woolwich cards are not affected.
As of 26 January, Barclaycard started setting a personalised minimum payment amount for its customers. The figure is based on the highest of:
2 to 5% of a customer’s main balance, plus any instalment plan payments; or
1 to 3% of a customer’s main balance plus any interest, default fees or account maintenance fees, as well as any instalment plan payments; or
£5 or a customer’s total outstanding balance if it’s less than £5.
In addition, as well as banning the use of their credit cards for gambling, Barclaycard have also cut some of their fees.
Now, if you go over your credit limit, you won’t be charged a fee or lose any promotional interest rates - previously this would have cost you £12 each time.
If you’re late in making payments, you’ll only receive a late payment charge of £12 up to four times a year (so up to £48 per annum) and you won’t lose any promotional interest rates.
And finally, if you use your credit card to withdraw cash, you won’t be charged any interest as long as you pay the balance off in full.
Tesco Bank customers
Tesco Bank has introduced a similar shake up of its minimum payment terms for credit card users, which will come into effect from March.
The changes will affect anyone who took out a credit card with the lender between November 2017 and May 2020, with the exception of those who hold the Foundation card.
From March, Tesco credit card customers affected will have a minimum payment amount that’s the highest of:
double the interest rate and default fees, plus £5; or
1% of the balance plus interest and any default fees; or
the amount they're over the limit by, including any over limit fees; or
For anyone still on an introductory offer, this new minimum payment policy won’t come in until their offer ends.
Finally, from October, Mastercard is increasing its interchange fee for merchants based in the European Economic Area (EEA). This will affect online payments made using UK-issued credit and debit cards - in person transactions will not be affected.
An interchange fee is basically a transaction fee that merchants pay whenever a customer uses a credit or debit card. The money goes to the card issuing bank, rather than Mastercard, to cover things like admin fees, and loss through fraud and bad debts.
At the moment, the interchange fees are 0.3% of the transaction for credits cards and 0.2% for debit cards, regardless of whether the payments are made in person or online.
From October, the fees merchants in the EEA will pay for each online transaction made by UK-issued cards will increase to 1.5% and 1.15% for credit and debit cards respectively.
Mastercard blames this on Brexit. It says: “As a result of the UK leaving the European Economic Area, Mastercard will adapt interchange rates on UK cards to the commitments it gave the European commission in 2019 for non-EEA card transactions.
“In practice, only EEA merchants making e-commerce sales to UK cardholders will see a change. Interchange is not a consumer facing cost but the fees paid between merchants and banks for the provision of payments. Consumers should not feel any impact of changes in interchange fees.”
It’s worth noting that its competitor Visa hasn’t announced the same increase in fees for UK customers despite having similar rates for non-EEA online transactions.
What it means for you...
First, let’s talk about the minimum payments shake up, which by the way won’t affect you if you already pay off your balance in full each month.
A significant number of Barclaycard and Tesco credit card customers will be affected by the change - a move that the respective lenders say will help people pay off their debts quicker.
This is true; only paying off the minimum amount on your credit card is about one of the worst things you can do financially speaking.
At the same time, the increases in payments may mean a significant burden for those struggling financially right now.
If you’re one of those affected, you should speak to your card issuer first - there is the possibility of negotiating down the amount the minimum payments increase by. But of course, the quicker you pay off your credit card debts, the less you pay in the long run.
But more widely, as the effects of the pandemic persists, we may well see more credit card providers follow suit.
As for the changes at Mastercard, well the effects are purely speculative at the moment.
Interchange fees are paid by merchants rather than consumers, as Mastercard says in their statement, and under EU law, merchants are not allowed to pass these fees directly onto consumers anymore (remember when you used to have to pay an extra 50p when using credit cards in some shops?).
But given the fees will be upwards of 400% more than before, it’s not hard to imagine these costs will trickle down in one way or another, especially online.
It would be easy, for example, for a merchant to set different prices for different currencies to try and recoup some of these costs.
They could also increase the service charge or shipping fees for UK orders.
Or perhaps they will simply reject online orders from the UK altogether in the same way that some shops refuse to accept Amex cards. And if so, you may find that you’ll want to have a back up Visa card - just in case.
Think someone you know might like Money Talk? Forward them this edition and see what they think.
New guidance on repossession and payment holidays
The Financial Conduct Authority (FCA) has updated its guidance to lenders and it’s mostly good news for those struggling financially due to the current pandemic.
The repossession bans for homes has been extended to 1 April 2021 (except for in exceptional circumstances).
However, for consumer credit borrowers, goods and vehicles can be repossessed from 31 January 2021 - although this should only be done as a last resort.
In both of these cases, you should speak to the lender about what they can do to accommodate you and charities such as Step Change may also be able to offer additional advice.
The FCA has also stressed that payment holidays and other support are still available for those who need it.
The deadline for applying for a payment holiday is 31 March 2021 and it applies to anyone borrowing through mortgages, personal loans, credit cards, store cards and catalogue credit, motor finance (including hire-purchase and leasing agreements), rent-to-own, buy now pay later, pawnbroking agreements and high-cost short-term credit schemes.
Again, this is a conversation you need to have with your lender as to what they can offer.
A payment holiday isn’t automatically offered - they may agree to let you pay a smaller amount for a limited time for example. And as interest rates will continue to accumulate, you should only request a payment holiday if absolutely necessary.
You’re only allowed a payment holiday for a maximum of six months, for three months at a time, which means if you’ve already had one this pandemic you won’t be able to apply for another one. Your lender or a debt charity should be able to advise you on the next steps.
This week’s key numbers
HMRC data shows that in the final three months of last year, 10% more people withdrew from their pension flexibly (from age 55) compared to last year, the total value of which, at £2.4 billion, is a 6% increase compared to the same months in 2019. These values are only based on taxable flexible payments, which means ordinary and non-taxable portions of pension payments are not included.
While some of these will have been by those suddenly in need of extra cash due to the current pandemic, now is a good time to mention that there has been a rise in pension scams since the pandemic.
Since February last year, the number of employees on payrolls has fallen by 828,000, with most of this fall registered at the beginning of the pandemic according to the latest figures from the Office for National Statistics (ONS).
Compared to last year, unemployment rate recorded to November 2020 is estimated to be 5%, which is 1.2% higher than the same time last year. It’s hard to judge how representative this figure is though, given that the furlough scheme is still helping to support many jobs.
Case in point, in the final quarter of 2020, the number of business closures has gone up 37% compared to the previous year.
Surprisingly, the ONS says, “businesses in the accommodation and food services industry made up a smaller share of business closures in Quarter 4 2020 than usual. This is despite this industry being adversely impacted by the coronavirus pandemic in the short term.”
This, it says, “may be due to measures taken by the government to support industries through the pandemic.”
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I’ve wrapped up the first week of freelance life and it has turned out to be more productive than I imagined - mainly because last weekend I mentally sketched out a new daily routine and it’s kept me on the straight and narrow.
That said, I’m nowhere near hitting the financial target I set myself, which makes me wonder whether I’ve set standards too high.
Of course, it’s only been a week and I should give myself a break. But when is it time to readjust expectations and when are expectations adjusted too low?
While I figure that out, I give you the best thing I’ve seen all week:
PS, your tax self assessment is due today! Although the HMRC has formally waived the late filing penalty until 28 February, you do still have to pay your taxes by 31 January or you’ll start accruing interest on any amount owed.