Barclaycard is increasing minimum credit card payments for millions of customers in January that could almost double some bills, raising fears that struggling borrowers will come under extra pressure after Christmas, when they face the worst month for household finances.
Debt campaigners say the changes – which are being rolled out to Barclaycard’s 8 million customers next month – should be introduced gradually over time to avoid bigger bills right after the costly Christmas period.
“I agree with the general aim of increasing minimums so people can clear debt faster,” Sara Williams, the author of the Debt Camel blog, said. “But I think Barclaycard should have introduced these large increases in stages over a year, not all at once. That is going to be a big shock to many people in January.”
A spokesman for the credit card operator suggested the timing was unintentional and that they had given customers three months’ notice. However, Williams said many customers likely missed or ignored the email, which was delivered with the generic subject line: “updating your T&Cs [terms and conditions]”.
The payment increases are down to Barclaycard’s new system for calculating minimum payments, which adds an extra multiplier on top of the original interest rate. Barclaycard said the move will personalise repayment plans for each borrower and is part of broader efforts to address persistent debt by making sure customers clear their balance more quickly.
It is understood that monthly bills could end up jumping by 20% to 100% of current levels, after applying the highest of three calculations: 2-5% of the outstanding balance; 1-3% of the balance, plus any interest, default fees or account maintenance fees; £5 or your total outstanding balance if it is less than £5.
Barclaycard said the new monthly minimum is capped compared with what customers repay at the moment and those who exceed the cap would be excluded from the charge. For example, a 100% increase on a £20 payment might be deemed more reasonable than a 100% on a £100 payment, after applying the new calculations.
However, Barclaycard would not confirm the cap, saying it is tailored to each customer, and did not disclose how many of its 8 million customers would avoid the extra charges as a result.
While customers were notified of the changes in November, each email only showed the range of calculations rather than the pound and pence change that would apply to their bills come January.
Williams said: “People should be able to see clearly what minimum payments will be charged before they apply for a credit card. Barclaycard setting personalised amounts, and with a cap they will not describe – this isn’t transparent.”
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Mick McAteer, a former board member of the Financial Conduct Authority who now runs the Financial Inclusion Centre, said he agreed with the minimum payment increase – in principle. “But it is critical that lenders have proper systems in place to identify borrowers who are struggling with payment increases and treat them fairly, this will be a huge issue next year as the economy recovers post Covid,” he said.
Barclaycard said it encouraged any customer who felt they could not afford the new charge to get in touch.
A spokesman for Barclaycard said: “This is part of our ambition to ensure no Barclaycard customer gets into persistent debt – where they pay more in interest and charges than reducing their debt, and take a long time to pay this debt off – and is being put in place to support our customers.”