The Removal of Minimum Payment = Pay More?

In society|BOOK on December 5, 2009 at 11:16 pm

An ongoing programme of research has found that removing the minimum payment can increase the amount that credit card holders pay monthly. Dr. William Matthews, a Lecturer from the Department of Psychology (University of Essex) is currently in collaboration with Dr. Neil Stewart (University of Warwick), investigating these findings further.

Dr. Matthews states that “small changes in a credit card bill can produce large and unexpected changes in amount people choose to pay”.  By removing the minimum payment, individuals are biased into paying less than they otherwise would.  Although a small minority are protected, in the long term people are getting into more debt. These are the main findings in Dr. Stewart’s experiment which was published in The Quarterly Journal of Experimental Psychology earlier this year.

The most recent experiment, which follows from previous findings, began in April 2009 and has been funded by the Economic and Social Research Council.  The study has analysed real statements from 11 credit card providers, as well as providing online participants from market research company websites with pretend credit card bill scenarios.

As a result of these findings, both Dr. Matthews and Dr. Stewart have been involved in conversation with the Government Department of Business, Innovation and Skills.  There has been discussion of a new white paper detailing changes to the minimum payment.  However, the changes could come with a risk.  Dr. Matthews explains that, “if you make arbitrary changes, you may have effects that you are not expecting”.  People could ultimately be worse off, paying more interest.

The consultation period ends in January 2010.

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