More than 100k Tesco Credit Card Customers Face Payment Hikes

Up to 125,000 Tesco credit card customers could see their minimum monthly payments increase from March, as the supermarket’s banking arm overhauls its credit card terms to reduce the risk of customers falling into serious debt.

The shakeup will apply to some credit card accounts opened between November 2017 and May 2020, including those still within their introductory period. The changes will bring minimum payment terms for these customers in line with the model that has been applied to customers who have signed up for Tesco credit card since last May. 

Tesco said those holding Foundation credit cards, which help young people and those with bad credit build their credit scores, won’t be impacted. Additionally, customers who might struggle to afford higher minimum payments, as determined by Tesco’s assessment of its account holders, will also be excluded

The overhaul means customer’s new minimum payment will be the greatest of these four values:

• 1% of balance plus + interest + default fees
• £25
• Over limit amount including over limit fees
• 2 x (interest + default fees) + £5

Cardholders have previously had their minimum payments calculated based on the top three clauses. The last clause is new and, if it’s the highest value of the four clauses, you’ll see your minimum payments rise. 

Tesco estimates that 5% of its credit card customers—up to 125,000 people—will see their monthly payments increase by an average of £20 as a result of the shake-up.

Higher monthly payments under the new terms mean customers will clear their debts earlier and pay less interest overall.

The changes will take effect from March or, for customers still within their introductory period, from the end of that period. Tesco has sent out letters to all impacted customers and urges them to get in touch if they have concerns.

A spokesperson for Tesco Bank said: “From March 2021, a small proportion of our credit card customers will see a change in the way their minimum payments are calculated. This decision was taken to help customers pay down their credit card debts more quickly, resulting in them having lower interest charges and reducing the risk of them entering persistent debt. 

“We’ve excluded customers from this change where we’ve identified they may have difficulty affording the new minimum payment. Any customer who has concerns about meeting a new minimum payment amount should contact us.”

Tesco is the second bank to recently overhaul its credit card terms to increase minimum payments for some customers. Barclaycard announced similar changes in November, with new terms coming into effect last Tuesday, 26 January.