Why have you contacted me about this?
The Financial Conduct Authority (FCA) has carried out a study looking at how consumers use credit cards as a result, credit card providers are taking a series of steps, including providing support to customers who have, over a period of 18 months, paid more in interest and charges than they’ve repaid of the amount borrowed.
I’ve seen other banks referring to 'persistent debt' - What does this mean? The Financial Conduct Authority (FCA) has carried out a study looking at how consumers use credit cards as a result, credit card providers are taking a series of steps, including providing support to customers who have, over a period of 18 months, paid more in interest and charges than they’ve repaid of the amount borrowed.
What’s the purpose of the letter you’ve sent me? It’s to explain that the way you’re repaying your credit card balance could be costing you more in interest and charges. As a general rule, the less you pay each month, the more it will cost overall.
By paying just a small amount more each month, you could save money and see your balance reduce much faster. We’re also providing information to help you review what you pay, and about where you can get support if you need it.
Why has the Financial Conduct Authority (FCA) introduced rules about ‘persistent debt’?
The FCA was concerned that some customers could end up having a credit card debt over a long period, without making any significant contribution toward repaying the amount borrowed.
This can happen, for example, where you only make minimum payments on your credit card for an extended period, which means it can take a long time to clear your balance.
Why does this matter? Credit cards offer a lot of flexibility to decide how you want to repay your balance, which is a feature lots of customers’ value. But credit cards aren’t really intended for long-term borrowing, and making consistently low payments may not be a cost-effective way to borrow. It’s important to remember that just making the minimum or low payments over a long period of time will take you longer to clear your balance and cost you more in the long run.
But I’ve been making my minimum payment – so I haven’t done anything wrong?
Under the terms of your credit card agreement you're required to pay at least the minimum payment. However we do need to make you aware if you’ve paid more in interest and charges than you’ve repaid of the amount borrowed over an 18-month period, including the potential implications of continuing to do this over a longer period.
How could I have paid more in interest and charges than I’ve repaid when I’ve been making my minimum payment?
Your minimum payment is calculated as the amount of interest and default charges added to your account since your last statement, plus 1% of the rest of your balance (or 3% of the full amount you owe, whichever is higher).
For example, if you borrowed £2,000 on your account at an interest rate of 18% and had a £12 charge added, your minimum payment would be £62 – made up of £42 interest and charges, and £20 towards the rest of your balance (1% of £2,000). So if you only made the minimum payment, you’d pay more towards interest and charges than towards paying off what you’d borrowed.
How can you make these changes to my account when I’ve already signed my agreement and kept to it?
There’s no change to what you have to pay under your credit card agreement – we’re encouraging you to pay more if you can, but it’s up to you to decide if you want to increase what you pay, and what you can afford. However, there are certain steps we might have to take if this situation continues as outlined in the letter we sent to you.
What are the implications? If we’ve contacted you to let you know you’ve been paying more in interest, fees and charges then you've repaid of the amount borrowed, we’ll keep monitoring your account and contact you again after 9 months or so to encourage you to increase your payments, if you can.
If you pay more interest and charges than the amount you repay over a second 18-month period, then we might need to take further steps which could include asking you to increase your payments in accordance with options we provide. We may also cancel or restrict the use of your account if you don’t reply or meet our request (we’ll always contact you to explain what’s happening before we do this).
Is this affecting my credit score?
No, as long as you’ve been making at least your minimum monthly payment and have stayed within your credit limit.
How do I review what I’m paying?
You should always carefully consider what you can afford - the key point to remember is that, by paying even a bit more each month, you could save money and see your balance reduce much faster. A good way to explore how long it’ll take to repay your balance and how much you could save by paying a bit more is by using the calculator at http://www.cardcosts.org.uk you'll find all the information you need to use it on your monthly statement.
What’s the best way to change what I pay?
There are different ways to pay, so you can work out what’s best for you – for example:
You might prefer to carry on making your minimum payment each month, and to make additional one-off payments when you can. You can make a one-off payment by phone or Internet Banking – there’s more information on the back of your statement.
You could think about amending your Direct Debit to pay your full balance or a fixed amount each month by calling us, or set one up if you haven’t already by calling us for a form or by downloading one at www.johnlewisfinance.com/directdebit. If you prefer to budget for a fixed amount each month, setting up a fixed monthly payment could be a good option. Even paying just a small amount more than your minimum payment each month can make a difference in the long run, as long as you keep an eye on what you’re paying as you might need to adjust it if you spend more on your card.
Here’s a simple illustration (it assumes you don’t keep spending on your card and that there’s no change in the interest rate):
Using the example of spending £2,000 on your card at an interest rate of 18%:
What’s the ‘Voluntary Payment’ option? It’s an amount we’ll show on your statement over 18 months, It shows how much you’d need to pay that particular month to be on track to pay at least as much towards the rest of your balance as you do in interest and charges on your statements over the 18-month period.
I already make my minimum payment each month. Why are you asking me to make this Voluntary Payment? The Voluntary Payment option doesn’t change what you have to pay (your minimum monthly payment, and any missed payments and amount above your credit limit). But you can choose to pay a higher amount to see your balance reduce faster and save money on interest – this could be the Voluntary Payment amount, or another amount based on what you can afford.
Is this as well as my minimum payment, or instead?
Instead. The Voluntary Payment option will always be at least as much as your minimum payment – it will usually be more, because it’s designed to pay off double the amount you’re charged. So using our example of a £2,000 balance at an interest rate of 18% plus a £12 charge, your minimum payment would be £62 including interest and charges of £42 – but your Voluntary Payment would be £84.
How does this help me?
If you’re able to pay this amount or more over the 18 months we show it on your statement, you know you’ll pay at least as much towards the rest of your balance as you do in interest and charges on your statements over the 18 months. This means you’ll pay down your balance sooner and pay less interest than if you stick to making the minimum payment. It’s really there as a guide for you, so you can check what you’re paying over the 18 months and whether you’re on track.
Will the Voluntary Payment option be the same amount each month?
No. It depends on how you’ve used your card and what you’ve paid off, so it’ll change each month. It’s designed to work over the 18 months, so you can start paying it at any point in the 18 months and the end result will be the same (though bear in mind that, the later you start, the higher the monthly amount will be).
How can I set up a payment for the Voluntary Payment option?
You can make a payment for this amount online, by cash or cheque at any bank, by telephone/internet banking with your own bank, or by post. You’ll find further information about how to make a payment on the back of your statement.
You won’t be able to set up a Direct Debit for the Voluntary Payment option – but you can set one up for a fixed amount and use the voluntary payment option on your statement as a guide to check whether your fixed payment is enough to cover at least double the amount you’re charged. If not, you might want to consider adjusting your fixed payment, or making additional payments when you can.
What happens if I don’t make the Voluntary Payment?
You don’t have to pay it – it’s voluntary, and there are other ways to increase what you pay. You might still find the Voluntary Payment option useful as a guide, to check what you’re paying. If you can’t pay it any particular month, you can still choose to pay just the minimum – in which case we’ll adjust the Voluntary Payment amount we show over the remainder of the 18 months, so you can start at any point (if you’re able) and still get on track. So in our example, if you made your minimum payment of £62 but weren’t able to pay the higher Voluntary Payment of £84, the £22 difference would be carried over.
What happens if I carry on paying the minimum amount, and don’t increase what I pay?
You only have to pay the minimum amount. We’re encouraging you to pay more if you can, but it’s up to you to decide if you want to increase what you pay, and what you can afford. However, there are certain steps we might have to take if this situation continues such as stopping further spending on your card.
What should I do in this situation? We appreciate you might not be able to pay any more at the moment – but keep it under review, and if things change, remember that even paying a small amount more each month (or making a one-off payment, if you can) could really make a difference. If you need some help budgeting, there are some contact details for free, independent advice in the table below. It might also be worth looking at some of the online budgeting tools which are available, for example the Money Advice Service budget planner.
You’re already aware that I’m struggling to make my minimum payment each month – why are you asking for more?
If you’ve already contacted us to discuss your circumstances and what you can afford to pay, we’ll continue to work with you. We’re not asking you to pay more if you can’t afford to – but we still need to make you aware of what could happen if you carry on paying more in interest and charges, and where you can get further support if you need it.
I’m already on a repayment plan – is there any impact on this?
No – your repayment plan isn’t affected and we appreciate you may not be able to increase what you pay at this time. However, we still need to make you aware of the implications of only making low payments over a long period of time.
To amend a Direct Debit over the phone or request a form for setting up a Direct Debit, call us on 0345 300 3833.
The Direct Debit payment options available are: minimum payment, fixed payment or full balance.
Interest and charges If you've received a letter about paying more in interest and charges than towards the amount borrowed and have any questions or would like to discuss the letter, call us on 0345 300 3833.
Financial difficulties If you're facing financial difficulty and may not be able to pay the minimum payment and would like to discuss the options, call us on 0345 608 0764.
Free, independent advice StepChange and Citizens Advice offer free, independent advice to help with budgeting and managing your finances.
John Lewis plc trading as John Lewis Finance acts as a credit broker for the purpose of introducing credit for the Partnership Card provided under exclusive arrangements with the lender John Lewis Financial Services Limited, a subsidiary of HSBC UK Bank plc.
John Lewis Finance is a trading name of John Lewis plc, registered in England with company number 233462, registered office: 171 Victoria Street, London SW1E 5NN. Authorised and regulated by the Financial Conduct Authority (Financial Services Register number 724309). John Lewis Financial Services Limited (a subsidiary of HSBC UK Bank plc) is registered in England with company number 464530, registered office: 8 Canada Square, London E14 5HQ. Authorised and regulated by the Financial Conduct Authority (Financial Services Register number 715060) including for the provision of payment services (Register number 542750). ‘Partnership Card’, ‘John Lewis Finance’ and other terms including ‘John Lewis’ are John Lewis Partnership brands and John Lewis Financial Services Limited uses them under licence from the John Lewis Partnership.
John Lewis plc, 171 Victoria Street, London SW1E 5NN acts as credit broker; credit provided by John Lewis Financial Services Limited, T&Cs apply.