Consumers 'confuse payment breaks and PPI'

Thursday, 29 January 2009 12:00

Payment holidays on credit cards could be confusing consumers, an expert has warned.

The government is keen to support credit card customers struggling to pay their debt and one option may be for customers to take a break from their payments, agreed with their provider, while they attempt to clear their arrears.

Several credit card providers offer a payment holiday as an optional benefit on their card, for a monthly fee, with the break activated if the customer becomes ill or unemployed.

The fee is usually charged as a percentage of the balance,

However, unlike with payment protection insurance (PPI), the balance is only frozen - no payments are made onto the account during the period - and there are concerns some customers are confusing the two.

Sara-Ann Burgess from insurer Burgesses said: "People are looking at ways they can meet their monthly bill commitments should they lose they job and I worry this card gives the impression it will help pay people's debts.

"It might be giving them longer to pay off their debt, but gives no tangible support to enable them to do so. PPI on the other hand, provides a monthly cash benefit should redundancy occur, that can be used to pay a variety of bills, including credit cards and other loans."

Barclaycard, which offers a payment break as an option on its Sky card, said the service is clearly explained to customers.

"We don't accept that we're attempting to confuse customers - the product is sold in a transparent way with full disclosure to customers before the product is taken out," a spokesperson said.

"It is correct that the product is not an insurance product, but one that removes the need for customers to service their account should they become unable to manage their account for one of the covered reasons."

According to the Financial Ombudsman, there have been no formal complaints so far from people who feel misled over payment breaks, but a spokesperson confirmed there have been several enquiries.

"If it is something that a consumer felt they had been mis-sold on, they could make a complaint," a spokesperson said.

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