Barclaycard minimum payment - systematic over- and under-charging?
I've noticed something about the method used by Barclaycard to calculate minimum payment amounts and it appears that they are deliberately and systematically mischarging interestto all customers who make the minimum payment each month.
The systematic mischarging may be costing Barclaycard customers millions of pounds a year - millions of pounds that go straight onto Barclaycard's bottom line. In brief, Barclaycard are under-calculating the minimum payment to keep balances slightly higher than they should be. They then charge interest on the amount underpaid.
When Barclaycard calculate the minimum payment amount they round down to the nearest pound, so if the balance on the account is £500.00 and the minimum payment is 2.5% per month then the correct minimum payment is £12.50; Barclaycard round the amount down to £12.00. Averaged over all customers this is a 50p per month underpayment for those paying the minimum payment, i.e. £6.00 per year on average. There is nothing in the terms and conditions
This £6.00 underpayment earns interest for Barclaycard. If I assume an APR of 25% the interest earned on the underpayment amount will be around £1.50 per year. Not a lot you may think, but multiply that by the number of customers making the minimum payment each month, and then take into account the fact that this interest is compounded year on year.
After two years the amount undercharged will be £12.00 plus over £3.00 in interest. By years three and four the interest charged is approaching 100% of the total underpayment. For example based on figures from my own account, by the end of the fourth year I would be undercharged £24.00 (based on 50p per month) and would have paid £18.87 interest on this amount. Using an underestimate of half a million customers making the minimum payment each month, this would come to £9.435 million over 4 years. So an underestimate of the amount gained from this is over £2 million per year - all profit.
There is a further problem caused by Barclaycard undercharging which is that the minimum payment can sometimes be lower than the interest (which is never rounded down). This means that even if you make the minimum payment each month your balance will continue to rise.
I have raised this matter with Barclaycard once in December 2006 and again in December 2007. I have put it to Barclaycard that they are, at best, in breach of their own terms and conditions
What can be done as Barclaycard are in breach of their own terms and are deliberately ripping-off all customers who make the minimum payment.
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