Debt is written off after borrower makes repayments of $ 20,000 on the credit card balance of $ 12,000
A man who paid $ 20,000 in $ 12,000 credit card debt and ended up with $ 6,000 still owed had his debt written off.
The man complained to Financial Services Complaints (FSCL), one of the dispute resolution mechanisms for financial services.
He received his credit card in 2013 and generally had a balance near his limit. Over the years, he has made purchases totaling $ 12,000, FSCL said.
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He usually paid the minimum monthly payment by credit card and did not pay the balance.
There was also a time when he was struggling and making reduced payments.
In 2021, he completely stopped repayments, still owed at $ 6,000.
He then complained to the lender, saying he had paid $ 20,000 on his credit card bill over the years and did not understand why there was $ 6,000 left.
The lender offered to write off the account balance, but the borrower still believed he had overpaid and therefore filed his complaint with FSCL.
FSCL said the lender’s offer was reasonable. He had been billed $ 1,800 since taking the card and $ 11,700 in interest over the years.
“Even though this seemed like a high amount of interest charged on $ 12,000 in purchases, we pointed out to [the borrower] that we could see how this high number had been achieved. It is because there was a period when [he] was in financial difficulty and reduced his payments, and he had also stopped paying his credit card in early 2021. During these two periods, the balance increased and interest continued to accumulate.
“The biggest influence on the high amount of interest was that [he] had stayed near the credit limit most of the time, he had had the credit card. If only minimum payments are made and there is an interest rate of 25.25% per annum, the total interest charged over the years will be high. By offering to write off the balance of [the] debt, the lender was basically agreeing to write off half of the interest that had been charged over the years.
FSCL CEO Susan Taylor said people often underestimate the effect of paying only the minimum required on their credit cards.
The cumulative effects of high interest rates could mean that people have made little progress in reducing their debt, she said.
She said her program does not deal with many credit card complaints because most are offered by banks, which are part of the banking ombudsman’s complaint program. But a similar misunderstanding of how interest might accrue could be seen in other financial products.
FSCL does not identify complainants or the organizations they complain about.