Lloyds Bank, Halifax and Bank of Scotland have stopped reducing direct debits when credit card customers make manual additional payments, which could lead to many overpaying their next bill.
Lloyds Banking Group – which operates the three brands – introduced the change on Thursday 27 September.
It says the move is in the name of responsible lending and will help customers reduce their balance quicker, but customers could be been left confused and out of pocket by the change.
Which? explains what’s happening and how to avoid being caught out by the end of this flexible credit card repayment perk.
How manual payment rules have changed
Lloyds Bank, Halifax and Bank of Scotland have changed the way they process manual payments for credit card customers that have set up a direct debit for their repayments.
In the past, any additional payments made towards your credit card balance, before the main direct debit payment was due, would partially or fully offset the direct debit amount taken.
So, if your direct debit amount was £100 a month and you made a £130 payment before it was due, your direct debit wouldn’t be taken as it would be completely offset.
But from 27 September, the direct debit you have set up will not be reduced by any additional payments made, which could catch you out if you’ve become accustomed to the flexibility the banks once offered.
Why has the payment perk been scrapped?
Lloyds Banking Group says the change has been made to help customers repay their debts quicker.
A Lloyds Banking Group spokesperson told Which?: ‘As part of our commitment as a responsible lender, we have changed the way Lloyds, Halifax and Bank of Scotland credit card customers’ payments are processed.
‘From now on, if a customer makes a payment to their credit card account, it will no longer reduce their direct debit amount but will count as an additional payment, allowing them to reduce their balance more quickly.’
It says it wrote to customers about these changes in July and some customers will also have received text message reminders this month like these:
What does this mean for you?
If you have a direct debit set up to repay your Lloyds Bank, Halifax or Bank of Scotland credit card but continue to make additional payments ahead of your direct debit being taken you’ll likely pay more than you intended to.
Now, if your direct debit is for a fixed amount of £100 and you make a manual payment of £130 before it’s due – Lloyds Bank, Halifax or Bank of Scotland will still take the £100 – so you would have put £230 towards your bill rather than £130 or just £100.
Lloyds Banking Group told Which? if a customer of Lloyds bank, Halifax or Bank of Scotland makes an additional payment in error that leaves them out of pocket, the banks will refund the money on request.
What do other lenders do about manual payments?
We asked other major credit card providers about their policy on manual payments made before direct debits are due.
Largely, the main banks said they would offset the manual amount from the direct debit but it depended on how far in advance of the due date the payment was made.
But there are nuances to the rules depending on whether the direct debit was for the minimum payment, fixed amount or full balance.
Here’s what you need to know.
HSBC told Which? checks are made ahead of the direct debit claim and adjustments made to allow for payments already made.
Barclaycard told Which? it deducts the amount manually paid by the customer before the direct debit due date if the direct debit is a minimum payment or full payment.
If a customer makes a payment or clears the balance before the direct debit (three working days before payment is due), Barclaycard adjusts the direct debit for that month or does not take the payment.
However, if the customer makes a payment within these three working days, the original direct debit will still be taken. If that does happen, and you overpay, that overpayment would be used to compensate future spend. If no further spend happens, Barclaycard says it would automatically return the excess money to the customer.
Santander told Which: ‘If a customer makes an additional payment more than five days before the direct debit is due, it will be taken off the direct debit amount.
‘Any payments made less than five days before, will not be accounted for as the direct debit is likely to have already been called.”
NatWest/Royal Bank of Scotland (RBS)
NatWest and RBS said the impact of a manual payment depends on the type of direct debit a customer has set up and whether further transactions are made.
But generally, if you have selected the minimum or a fixed amount to be paid any additional payments or refunds that reach your account over six working days before the due date will reduce the amount due to claim.
If a direct debit is set up to pay the full statement balance each month, any additional payments or refunds that reach your account up to six working days before the due date will reduce or cancel out the amount claimed by the direct debit.
If you pay off your balance in full, regardless of your direct debit option, no direct debit will be taken – so you won’t be at risk of ending up in credit on your card.
Should you switch your credit card?
If you’re unhappy with the change to your Lloyds Bank, Halifax or Bank of Scotland credit card you may want to consider switching to a new deal that fits in better with how you like to manage your repayments.
Just make sure you carefully check the policy on manual payments and direct debits to avoid a dent in your bank balance you can’t afford.
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