Virgin Money customers hit with credit card interest charges will be refunded

Victory! Virgin Money customers stung by interest charges after new credit cards defaulted to minimum payments WILL be refunded

  • This is Money reported last month that Virgin Money customers were charged
  • Many were ex-Virgin Money employees and cardholders for many years
  • When setting up the cards they were only able to do so making minimum direct debit payments and would have to subsequently change it afterwards
  • The bank previously said it made everything clear to customers but has now decided to refund customers who applied before August 9 last year

Virgin Money is refunding loyal customers hit by interest charges  after they unwittingly only made minimum payments on their new Virgin Atlantic credit cards.

It’s a u-turn from the bank and a victory for This is Money. 

Previously, the high street bank said it was made clear to customers signing up for its new Virgin Atlantic Reward+ card that customers would need to change their payment settings in order to avoid incurring interest.

This is Money reported last month that several longstanding Virgin Money credit cardholders, some of whom were ex-employees of the bank, had been left with charges on their accounts of up to £620.

Return flight: Virgin Money is refunding customers who incurred interest on their balances after applying for new credit cards – after initially claiming info was made clear to customers

They had to apply for a new credit card last year when Virgin Money replaced MBNA as the provider, and claimed they were only able to set up a direct debit paying the minimum amount each month, after years of paying the balance in full.

It transpired they needed to have subsequently contacted Virgin Money to change the amount they were paying – and some were stung for hundreds of pounds as the card’s APR was 63.9 per cent.

Those affected at the time said they were ‘disappointed’ and ‘saddened’ by the situation, and decried the decision to put the onus on customers to make the change as ‘not classy or in keeping with the Virgin ethos’.

The bank initially refused to refund customers en masse – though one, Rae Wood, did get her money back as a ‘gesture of goodwill’ – and said it won a small number of cases that went to the Financial Ombudsman Service.

However, it now appears to have changed tack. 

Peter Ballard, who worked for Virgin Money for seven years and ended up with a £620 charge, told This is Money he received a phone call from the bank ‘out of the blue’ on Friday telling him his interest was being refunded. 

Virgin is refunding any interest charges incurred by customers who signed up before August 9 last year with a minimum payment direct debit, but who had intended to pay their balance in full. 

This is provided they opt to have their direct debit set up to pay their balance in full each month going forward.

The bank said the reason for the cut-off was because anyone who opened an account from that date with a minimum direct debit received a message from them 20 days after account opening to remind them the direct debit was set up this way and how to change it if they wanted to.

It also made a subsequent change in December last year that allowed new applicants to set up an initial direct debit that would clear the balance every month.

A Virgin Money spokesperson said: ‘We’re very confident the application process for Virgin Money’s new Virgin Atlantic credit card is really clear and transparent and clearly sets out the direct debit process for customers. 

‘We’ve had some feedback from a very small number of customers who previously had a different Virgin Atlantic card that there was some confusion about their direct debits.  

‘We have put in place an additional text alert for customers to remind them of their direct debit options and for any customers who applied for a card before this text alert was put in place, as a gesture of goodwill, we will offer a refund of interest to customers who contact us, provided they opt to have their direct debit set up to pay their balance in full each month.’

Credit card payments

When you open a credit card, you can choose to set up a minimum payment or for the balance to be paid off in full.

Paying off the balance in full is exactly what it sounds like – you clear the balance you’ve accumulated on your card that month, meaning you aren’t borrowing any money or incurring interest.

You can also choose to pay off the minimum amount. This amount is normally set at either a percentage of your balance or a cash amount, whichever is greater.

Added to this will be any interest incurred on that balance, as well as any charges from a payment default and part of the annual fee if there is one. The Virgin Atlantic Reward+ card has an annual fee of £160.  

The next month the same thing happens again, and as this goes on your debt gradually becomes lower. 

But the problem with this is that as your debt balance reduces, so does the minimum payment. 

Therefore instead of accelerating the repayment of your borrowing – as you would do in the later stages of a mortgage or loan – you are only ever repaying a very tiny amount of what you borrowed.

This means that even relatively small balances on a credit card can take an extraordinarily long time to repay if you only paid the minimum amount each month.

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