Positive Payment Order

The term Positive Payment Order, or Positive Payment Hierarchy as it’s sometimes called, is a relatively new concept and refers to the practice of allocating credit card holders (monthly) repayments to the most expensive interest bearing items on their credit card account first. Its part of an overhaul of UK credit card legislation called the Consumer Credit Directive (CCD) designed to give the consumer a better deal, and card issuers were compelled to allocate customer’s payments this way by 4th January 2011. The rest of the CCD became law from the 1st February 2011.

It’s thought that the move to Positive Payment Order will save consumers millions of pounds a year.

Many people aren’t aware that if you don’t settle your credit card balance in full every month each different type of expenditure you’ve made on your credit card will carry a different interest rate. Typically cash-advances and money transfers to current accounts are the most expensive items, in term of interest rate charged by the card issuer, whilst purchases and balance transfers usually carry lower rates and are often subject to limited time 0% interest promotions.

In the past 0% on balance transfer and 0% on purchases promotions have been criticised. They can lure consumers into taking out new credit cards but then if the card holder spends or withdraws cash on the new card they can be unwittingly trapped into paying long term interest at the headline rate on the card. This is because under ‘negative payment order’ any repayments they make on their new card would start to clear the cheapest debt first, like their 0% interest promotion, which is obviously costing them nothing in interest. This situation is worst still for consumers taking cash advances on the cards which carry the highest rates of interest.

Positive Payment Order is now law on all UK credit cards.

However, consumers should take care to read the small print before applying for any new credit card. Some credit card companies although sticking to the letter of the law on Positive Payment Order, aren’t complying with the spirit of it.

If the new credit card you’re considering carries both a 0% balance transfer deal, and a 0% on purchases deal, check whether the credit card company allocates payments first to the type of balance that carries the longer or shorter 0% period, or the higher or lower interest rate first. Only you who’ll know your personal financial situation can work out which deal suits you best.

Positive Payment Order does at least mean that any interest bearing
balances are cleared first.

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