Deferred Interest Payment Plans Banned

January 14, 2009 by TFB

I wrote on Monday about 0% APR, Same As Cash, and No Interest No Payments. Upon closer reading of the final rules adopted by the federal regulators in December, I realized that deferred interest payment plans like "same as cash" or "no interest no payments" are actually banned after July 1, 2010. Good riddance! I don't know why the regulators didn't include this change in their highlights of changes. They really should have, because it's a major win for the consumers. It shouldn't be buried on page 114 of a 367-page document. Maybe because it wasn't included in the highlights, news media like New York Times and Wall Street Journal didn't report this bit either. You heard it here first. The final rules are long and technical. Here's the pertinent part:

As discussed above, deferred interest plans are typically marketed as “interest free” products but many consumers fail to receive that benefit and are instead charged interest retroactively.  Accordingly, as with the prohibitions on other repricing practices discussed above, prohibiting the assessment of deferred interest will improve transparency and enable consumers to make more informed decisions regarding the cost of using credit.  Accordingly, the Agencies conclude that an exception to the general prohibition on rate increases is not warranted for the assessment of deferred interest.

The new rules still allow the lenders to charge interest first and credit back the interest if the consumer pays off the principal balance within the promotion period. This effectively preserves the benefit of "same as cash" to the consumers without the deception of deferred interest. It'll be interesting to see if the stores and their financing providers will continue the "same as cash" offers using this credit-back method.

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Comments

3 Comments on Deferred Interest Payment Plans Banned

  1. James on January 14, 2009 | permalink
    2.  

    I am glad that the deferred interest will be banned. It is like a ticking time bomb. We have one of those. I set up an automatic payment to make sure that we don't miss a payment and I still have to check the account to make sure that it is properly paid every month. Hassle for sure. When we made the purchase, the no-payment option was offered, but the retailer didn't tell us about the deferred interest part. We had to call the lender to ask the details. That's deception.

  2. Lisa on February 15, 2009 | permalink
    3.  

    The shortsightedness of some people is disturbing.

    Deferred interest payment (or Same as Cash) plans are not the evil here. Having purchased on a number of them myself, I'm aware that they (like any agreement I sign) require some diligence on my part. I have to read the contract because often the people I buy from aren't financiers and don't necessarily grasp the terms from the purchaser's perspective.

    The evil is the person who doesn't pay attention to the terms and conditions of the accounts he initiates, then wants to blame the system when he fails to live up to those terms and conditions. It comes to the accountholder drowning in interest unnecessarily, as it is reported in the disclosure statements he was agreeing to when he made his purchase.

    I believe there is a better way to disclose the pitfalls of "same as cash" financing, and would be fully in favor of heighteining consumer awareness of the dangers of missing payment due dates and payoffs.

    I also believe it is shortsighted in this economy to remove such a tremendous and valuable buying tool from consumers (and selling tool for already staggering retailers). Because the banks and institutions that loan this money have 'run the numbers,' and know that a certain percentage of the people who sign up for Same as Cash offers will not pay them off in the term provided, it is my responsibility to read and understand my terms, ask questions when I cannot, and avoid being a statistic.

    When will American consumers recognize THEIR responsibility in the tumbling U.S. economy, and quit trying to blame the articles put in place for its survival? I do not want to be lumped in with those responsible for effecting this legislation. I feel it's going to strip my purchasing power as a consumer who likes to 'run the numbers' to MY OWN BENEFIT… and buy on time with their money rather than my own.

    I'm not sure the economy can sustain the removal of deferred interest payment plans, and that more companies (and their employees) will become casualties if this legislation comes to bear.

    Use your noodles, folks.

    Signed,
    A concerned businesswoman

  3. Patrick on March 2, 2009 | permalink
    4.  

    I do not beleive that this type of offer is bad in of itself, but I do beleive that the lender uses it to bring in all manner of charges against the borrower that may not be recognized until stuck in the deal.

    For instance, my wife and I purchased a new furnace and electric service for our home thourhg Sears Home Improvement. GE Money finaced it with a no payments and no interest for 13 months with defered interest charged at expiration of the offer. We fully understood the terms, and all were diclosed, EXCEPT one detail. When the expiration period hit, the finance charge brought us over our credit limit, thus creatinneverg an over limit fee of $32.00.
    That detail was not in the disclosures, or on the monthly statements, but only realized when we got our first statement after expiration. Yes, each monthly statement indicated a credit limit, and our current balance, and the amount that would be charged at the end of the expiration period. There was never a note or warning that we could get charged a fee for going over our limit, it is just assumed we would realize that by "common sense " as they told us upon calling them up to discuss the over limit charge. Also, they said we could stop that fee by paying down our balance below our credit limit, which could only happen with a $2800 dollar payment by us. We asked for a credit limit increase so that future montly bills would not get the fee, they said no, as the computer would not allow it once you go over your limit. They did offer to credit back the fee one time, but it would hit us monthly until with in our credit limit. We are stuck, as we can not pay the interest immediately. If we had known this detail at the start, we would have paid it monthly with each statement. There was no minimum payment all year. It will take us 30 years at $300 a month just to pay the interest down past our credit limit. How is this fair?

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