Long-term debt with Goldfish card 6/5/05

Thousands of unwary customers could be caught up in never-ending credit card debt after a change in repayment policy by Lloyds TSB.

From the 1 July, 1.3m Goldfish customers will have their monthly repayment figure cut to 2% of the outstanding balance, replacing the current 3% charged.

This could have serious consequences for those who only make minimum monthly repayments as the change means lower monthly repayments resulting in a huge increase in interest. Sticking to the lower repayment could mean some never pay off their debt.

This move by Goldfish has drawn widespread criticism from consumer groups who have branded the move ‘reckless’, ‘ridiculous’ and ‘irresponsible’.

Currently, someone who owes £2,000 and only repays the 3% monthly minimum would 14 years and nine months to repay the debt, paying £1,221 interest.

These figures, supplied by Lloyds TSB, work on the assumption that customer has the cheaper Goldfish card which has an APR of 14.9%. However, these figures don’t take into account those have the more expensive card which charges 17.9%.

For those who have payment protection insurance (PPI), which is supposed to cover monthly repayments in the event of being unable to work, the consequences could be even more dire.

At present, Lloyds TSB charge 0.89% for PPI. When combined with the interest, the result will be that the monthly charges on the card will be greater than the minimum payment. This will result in Lloyds TSB increasing the minimum repayment to match all the charges resulting in a never-ending cycle of card debt.

Consumer groups are dismayed at this move saying it is irresponsible, especially after the banking industry was recently grilled by MP's concerned by rising levels of debt.

Laurence Baxter, from consumer group Which? Says: “We believe the minimum repayment should be the interest plus 3% of the capital owed.” He goes on to say: “ The best place for payment protection insurance is the deepest rubbish bin.”

The general consensus among consumer credit groups is it is best to always pay more than the minimum repayment and to be aware of the financial consequences of only making minimum repayments.

A spokesperson for the bank said there is a warning on credit card statements warning that the time taken to clear the balance significantly increase when making minimum payments only. However, the bank currently has no plans to warn customers who take out its PPI that their debt will never be paid by only making minimum repayments.

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