Grace Period and Double-Cycle Billing

Twitter brought my attention to this article on SmartMoney:

Double-Cycle Billing Persists, Legal or Not

It’s another "banks are out there to get you" article. It alleges that some banks are exploiting a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009 ("CARD Act") for double-cycle billing.

I’m sorry to say that the journalist was misled by her sources. Whoever fed her the story either lack basic understanding of how loans and interest work or they understand it but choose to ignore it.

The basic rule for loans and interest is if you use someone else’s money, you pay interest. The amount of the interest depends on the amount borrowed, the time in possession, and the interest rate. The reverse works when you deposit money into a bank. If they use your money, they pay you interest. I think everybody would agree to this as the basic principle of lending and borrowing.

When there are exceptions to this basic rule, the exceptions are granted by the lender out of other business considerations. The basic rule still applies. A borrower pays interest to the lender, for the amount and time borrowed.

At issue in the SmartMoney article are Macy’s and Bloomingdale’s credit cards issued by Citibank. These cards don’t have a grace period. Interest accrues from day one. The bank gives one exception to this rule: interest paid will be credited back if the borrower pays the principal and interest in full by the payment due date.

Let me put this in a picture. For simplicity’s sake, let’s assume:

  • A month is always 30 days.
  • Payment due date is 21 days after the end of the month.
  • The interest rate is 1.5% per month, or 0.05% per day.

Suppose a consumer charges $500 on Day 1 on a brand-new card. No additional charges are made during the month. On Day 30, when the bank issues the billing statement, the amount borrowed is $500. The payment due date is Day 51. By that time, the consumer will have borrowed $500 for 50 days. The interest will be $500 * 0.05% * 50 = $12.50. Therefore the payoff amount is $500 + $12.50 = $512.50.

If the consumer pays $512.50 on or before Day 51, the bank credits back $12.50. If the consumer pays any less, the bank does not credit anything back.

I fail to see how this arrangement is unfair to the consumer. The bank said up front the card will accrue interest for each day the money is borrowed, to which the bank is fully entitled. The bank also created an exception to give an incentive to the consumer for behavior the bank desires: pay the bill in full by the due date. The bank didn’t have to create that exception. It did because it wants its customers to pay it back in full.

The SmartMoney article says if the consumer makes a partial payment, this arrangement is equivalent to double-cycle billing, which will be illegal under the CARD Act. Let’s look at the picture again. Suppose the consumer pays $412.50 instead of $512.50 on Day 51:

From the $412.50 payment, $12.50 will be applied toward interest for $500 borrowed for 50 days. $400 will be applied toward principal balance. $100 is still outstanding, accruing interest from Day 51 onward. The bank does not credit anything back.

I still don’t see anything wrong in this scenario. The basic rule for loan and interest is satisfied: pay interest for amount and time borrowed. The consumer doesn’t get an extra credit back from the bank because the consumer didn’t take up the bank’s offer (pay in full).

To be honest I’m very annoyed by these consumer advocates. They complain about the consumer having to pay interest on the $400 but they ignore the fact that the consumer indeed borrowed that $400 for 50 days. I trust they have good intentions but it seems they don’t understand the basic rule for loans and interest.

These consumer advocates are looking at the bark through a magnifying glass. They miss the forest and they miss the tree. As a result, they are advocating for the wrong thing. The issue is moot if the consumer didn’t finance their purchase at Macy’s or Bloomingdale’s. If they pay for the purchase with their own money, they won’t pay interest. Everybody should understand this simple fact.

To take it one step further, not buying whatever they bought at Macy’s or Bloomingdale’s will save the consumer a lot more than the $10 interest the bank allegedly took through a legal loophole.

I don’t work for Macy’s, Bloomingdale’s, or Citibank.

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Comments

  1. Michael says

    Does this mean that on Day 30 they bill me $512.50, on Day 50 I pay the $512.50, on Day 52 I have a $12.50 credit to my account? If so, Macy’s is holding my money, and they expect me to use my Macy’s card to buy more stuff in order to use up my credit.
    Smells fishy to me.

  2. John Q. Public says

    I wouldn’t mind the Macy’s method if they refunded the interest in cash instead of forcing me to use that money on future Macy’s purchases.

  3. Harry Sit says

    Michael – Sorry about the late reply. No, they are not holding *your* money. You owe the $12.50 because you borrowed $500 for 50 days. The credit from the lender is *their* money. When they give their money to you, they get to choose how they give it to you. They give it to you as a credit on the statement. You don’t have to claim it if you don’t like the credit.

  4. John Q. Public says

    TFB, you are confused. The money Macy’s refunds is not their money. It is the account holders money that was previously paid because Macy’s charged them interest on an amount paid before the due date. According to Macy’s CC TOS, they charge interest unless the amount due is paid in full by the due date. However, they charge this interest in advance assuming you will not pay by the due date. Then, when they refund *your* money, they seem to force you to spend it at Macy’s. Further, the issue isn’t whether or not Macy’s charges interest on money you borrow. Macy’s was letting people who pay in full slide on the first 30 days of use of Macy’s money. The logic is that the first 30 days should be free even if you don’t pay in full. This is what Congress thought and thus eliminated double-cycle billing. It would help if you knew what you were talking about.

  5. Harry Sit says

    John – Why should the first 30 days be free? Show me any law that says the first 30 days should always be free. It violates the basic rule of loans — if you use other people’s money, you pay interest. A grace period is not an entitlement by law.

  6. John Q. Public says

    TFB, you’re still confused. Nobody said it was an entitlement. The law basically says that if a credit grantor gives someone who pays in full the first 30-days of the loan interest free, it should also give it to those who do not pay in full. The first 30 days have traditionally been free as 1) the industry’s incentive to get people to use credit cards, 2) because the banks also get up to 7% or more out of the merchant for each transaction, and 3) because the settlement process that credit card transactions go through means the card issuer isn’t actually out money for any transaction for at least several days. In any event, it is pretty weak-minded and deceitful for Macy’s to charge you interest in advance and then when they refund *your* money to you they practically force you to spend it in their store.

  7. Harry Sit says

    “The law basically says that if a credit grantor gives someone who pays in full the first 30-days of the loan interest free, it should also give it to those who do not pay in full.”

    There is no such law. Please show me which law says that. Let’s see who’s confused.

  8. John Q. Public says

    “Basically” as in one of the major reasons Congress passed legislation (i.e. a law) to eliminate double-cycle billing is to give those who pay in full and those that don’t the same 30-day free interest period. It’s one of those practices that Congress believed heavily favored the credit card industry and not the cardholders. All a credit card company has to do is not offer a grace period, period. I’d suggest a Literacy Volunteer if you can’t understand.

  9. Harry Sit says

    John – First, here’s a quote from Philadelphia Fed about the CARD Act and the regulations that implement the act (source):

    “Double-cycle billing does not harm consumers who avoid finance charges by always paying their bills in full each month or revolvers, who always incur finance charges because they make only partial payments on their bill each month.”

    The second part of the sentence says double-cycle billing does not harm revolvers. The ban on double-cycle billing can’t benefit them because they are not harmed in the first place. It does not give revolvers a free-interest period the way others enjoy. Your assertion “if a credit grantor gives someone who pays in full the first 30-days of the loan interest free, it should also give it to those who do not pay in full” is not accurate. Perhaps you’d like to see that if a grace period is offered to some, it must be given to all, but that’s not the law.

    Second, you said “All a credit card company has to do is not offer a grace period, period.” We are staring at one, aren’t we? The card in question does not offer a grace period, period. We started our small debate about to whom certain money belongs. When a card does not offer a grace period, the lender is legally and logically entitled to interest on its loan. What the lender does with that interest is the lender’s business. It can offer a statement credit to reward behavior the lender desires, or it can pocket it as profit. When the lender can pocket 100% of the interest and not give any back, you are complaining about the manner it gives some of it back?

    Last, in our exchange, I have based arguments to facts and logic. You on the other hand keep lobbing small ad hominem attacks as in “suggest a Literacy Volunteer”, while ignoring my request twice for citation that backs up your assertion. I’m open to being convinced when I see facts. Empty claims of things that don’t exist don’t cut it. Insulting me doesn’t add truth to your statements either. Please come back when you can support your arguments with facts. If you can only come up with insults, I’m not that interested. I’m sure you understand why.

  10. John Q. Public says

    Of course the whole concept of interest is irrelevant to those who pay in full. However, selectively quoting the Fed is, although not surprising, does little to establish credibility. You seem to have conveniently forgotten this: “In certain situations, this method results in consumers paying finance charges on a balance previously paid in full during the grace period.” Also, those who seem to have better than average math skills have determined that those revolvers who are not prejudiced by double-cycle billing are those who maintain a more or less constant balance. Others do pay more. Again, simple math skills that, shamefully, some self-proclaimed finance experts lack.

    In addition, you previously stated that there is nothing wrong with a creditor refunding any interest collected because it is, after all, their money. The fact is that it is not their money. Macy’s has for all practical purposes a grace period for those who choose to pay in full their monthly balance. Macy’s T & C specifically state “We will not charge you interest on those purchases if you pay any Revolving Account balance in full by the due date each billing period.” That you have failed to read or, more distressingly comprehend, that is apparent. The problem is that Macy’s charges the interest – that they are not going to charge you – in advance because they ultimately do not know if one will or will not pay in full by the statement due date. We will assume you at least understand terminology such as statement date and payment due date.

    The problem arises if and when you have to use the interest you paid, but shouldn’t have had to, to purchase something with your Macy’s credit card. Why should customers be forced to spend their money at Macy’s? Please tell us that if you pay someone a deposit to, say, cut your grass next weekend and the kid fails to do so that it’s ok for the kid to tell you that you have to leave the $25 with him as a credit against further use of the kids services — whether you want to or not. Go ahead, tell us. That way not only your math skills but also your integrity can be questioned.

  11. Harry Sit says

    John – Now I see where you are confused. You are looking at a different card or the card terms may have changed. The complete terms as of Feb. 2010 are here. There is no charge & refund scheme. It’s clearly not the same as what the SmartMoney article talked about. Anything you cite from the terms does not apply to the subject in this post. Apples and oranges.

    You assume the lender promised no interest but the SmartMoney article indicated they did not. The lender only promised a refund under certain conditions. It’s not a deposit for service not performed, as in your grass cutting example.

    Please stay on topic. May I ask if you agree to the following statements?
    (1) The lender is entitled to interest on money it lends unless it voluntarily agrees not to charge interest.
    (2) If the lender did not waive interest, the interest is the lender’s money.
    (3) The lender can choose what to do with its money.

    If you disagree with any of the above, please state why. Please don’t tell me the lender promised not to charge interest when they didn’t.

  12. coastiegreen says

    I read the original article, your posts, and I see the problem is that the original article’s author used a poor example to explain her thought and TBF missed the point because of this. You all can read and do math. Let me use a real world bill I got to explain the Smartmoney article to show that the billing seems like double-cycle billing (which was the point of the original article TBF, not a “bank is out to get you article”) not your fault though, the writer used a poor example to show how a practice is done that looks like double billing and may be perceived that way.

    Here is a real life scenario:

    Got a deal from my Visa Card which I pay off every month, or most of the time overpay every month, for the Airmiles.

    Here is a blank Check. Write if for at least $1000 and get 3000 air miles credit. No brainer, I write the check to myself for $1000 and cash it at my bank in the middle of the billing cycle and get my bill later.

    Billing Cycle 33 days, 19Mar to 20Apr.
    Check Transaction date 2Apr, post date 5Apr.
    $40.00 Finance Charge Promotion Fee Trans date 2Apr, post date 5 Apr.
    $2.14 Finance Charge Interest.
    Regular Purchases $3097.23
    New Balance 4139.37.

    So, I received my bill electronically on 20Apr and pay it immediately with a payment of $4217.18 (a little more than I owe) and it posts on 23April.

    So in the mean time I write them to see how they figured out the ADB of $595.15 and they reply back with a none answer saying they multiplied the ADB times the number of days in the billing cycle times the Daily Periodic Rate which = $2.14. But not revealing how they calculated $595.15. (Good luck figuring it out because it is brain teaser.)

    But they add this tid-bit. “Furthermore, on your 05/18/2010 statement, your account will be billed the remaining Interest Charges that would have accrued from 04/21/2010 until we received your payment in full on 04/23/2010. However, that final amount of Interest Charges will not be viewable until after your 05/18/2010 statement prints.”

    So despite the fact I paid my bill in full plus interest, I get billed interest the next billing cycle too. Which seems similar to a double-cycle billing. {and that is the point the article is trying to make} but is in reality two cycle billing.

    What took me a long to time to figure out was the Average Daily Balance calculation they figured in the bill.

    Balance Transfer 1042.14
    Avg. Daily Balance 595.15
    Daily Peridic Rate 0.010931%
    Interest $2.14
    Corresp APR 3.99%
    Grace Period, No

    Lord knows what my interest will be in May despite overpaying the April bill.

  13. Harry Sit says

    coastiegreen – Thank you for posting info from your bill. When people talk about double-cycle billing, they don’t tell you what double-cycle billing really is. What you experienced is not double-cycle billing even though you may feel like it is. Merely having interest in two billing periods is not double-cycle billing.

    Double-cycle billing computes interest from the average daily balance over two billing periods: the current one and the previous one. Suppose the borrower had a balance of $5000 in period 1, paid off $4,000 plus interest in period 2 and brought the balance down to $1,000, under double-cycle billing, the interest for period 2 is computed using the average balance over two periods, in this case ($1,000 + $5,000) / 2 = $3,000. Under single cycle billing, the interest for period 2 is calculated from $1,000.

    Double-cycle billing can also hurt the borrower if the borrower spent $5,000 in period 1, paid in full during the grace period, spent $1,000 in period 2 but paid only $900. Under double-cycle billing the lender would reach back to period 1 and charge interest for the $5,000.

    You had none of that. Your cash advance does not have a grace period. On the April statement, you had $1,000 cash advance plus $40 cash advance fee. Interest is calculated from April 2 to April 20, 19 days.

    $1,040 * 3.99% / 365 * 19 = $2.16

    I get $2.16, they got $2.14, close enough. Because you didn’t pay off until April 23, you would owe interest for two more days on your May statement (4/21, 4/22):

    ($1,040 + $2.14) * 3.99% / 365 * 2 = $0.23

    This has nothing to do with double-cycle billing. Your biggest hit from this convenience check game is the $40 cash advance fee. But you knew that, right? The $2.14 and $0.23 interest are peanuts compared to the $40 fee. If you really care about the $2.14 interest and want to minimize that, make your payment right after you deposit the convenience check; don’t wait for the statement. That will stop the clock sooner and you won’t have a residual interest in the following month.

  14. coastiegreen says

    TFB thanks, and you are exactly correct. But that 2 cent difference in the calculations (close enough) is what drove me nuts. I am came up with the same calculations but as it turns out did not figure up the interest exactly as you and I calculated.
    Here is how they figured it:

    Transaction date for the $1,000.00 Balance Transfer was April 2, 2010. However, the Promotional Fee was not applied to the account until April 5, 2010.

    This means that when you calculate the Balance Subject to Interest, the $1,000.00 Balance Transfer was on the account for three days before the $40.00 Promotional Fee was added to the balance.

    Taking this into affect, adding together $1,000.00 multiplied by 3 days and $1,040.00 multiplied by 16 days yields $19,640.00. When divided by the number of days in the statement cycle, 33, you will calculate the Balance Subject to Interest, which is $595.15. So they figured the $2.14 from that.

    Drove me nuts trying to figure that out.

    Two questions though, as I understand it the new law should prevent companies from double-cycle billing as you described above, yes?

    Say some scum bag credit company ignored the law and still charged double cycle anyway. What recourse does the consumer realy have? It is such a small amount and who you going complain to? It would have been nice if the law created some agency to report these bad actors too without haveing to go through littigation for some lose change.

  15. Harry Sit says

    coastiegreen – Yes, the new law banned double-cycle billing. I doubt the scenario you described will happen, but if it does, you can use Federal Reserve’s Consumer Help center for complaints.

  16. coastiegreen says

    TFB you said, “If you really care about the $2.14 interest and want to minimize that, make your payment right after you deposit the convenience check; don’t wait for the statement. That will stop the clock sooner and you won’t have a residual interest in the following month.”

    The fact is I did exactly that. I cashed the check and made a payment that day for the $1000 plus some extra for the transaction fee, plus the balance I had to pay off any balance riding at the time. But it did not matter because the payment was in the middle of the billing cycle and they did not figure the interest until the end off the billing cycle. There is not stopping the clock.

  17. Harry Sit says

    coastiegreen – I guess I should also add “and stop using the card for that month.” When you continue using the card, your mid-month payment is applied toward the purchases. I also had to take a cash advance at one time when I needed money fast. I only paid interest for 3 days. Read the story here.

  18. coastiegreen says

    Great Caezars ghost, stop using the card. I am like Clooney in “Up in the Air”, it’s all about the air miles man, no use no miles.

    I read the the story, great story by the way, and was intrigued by the APR you had so I checked mine. 84.97% yikes.

    As I understand the new law, correct me if I am wrong, any credits should be applied to highter interest rates first. Taking below figures directly from my bill I can’t figure which is higher for that purpose.

    Which is the highest interest rate?

    Balance Transfer $1,042.14
    Daily Periodic Rate 0.010931%
    Corrsp APR 3.99% APR
    APR this period 84.97%

    Balance Transfer $0.00
    Daily Periodic Rate 0.0356.16%
    Corrsp APR 13.00% APR
    APR this period 0.00%

    Purchases $3,097.23
    Daily Periodic Rate 0.0356.16%
    Corrsp APR 13.00% APR
    APR this period 0.00%

    Advances $0.00
    Daily Periodic Rate 0.057506%
    Corrsp APR 20.99% APR
    APR this period 0.00%

  19. coastiegreen says

    I see. Having the highest interest rate paid off first is not always in the consumers best interst then, violating the spirit of the law. I wish the law had been written to give the consumer the disretion on which rate to apply the payment to.

  20. John Q. Public says

    Why wouldn’t having the highest interest rate paid off first not be in the comsumer’s best interest? It might be that you are confusing your credit card APR with the effective rate you pay when the bank includes all fees into the figure marked “APR this period.”

    When the law says that amounts paid above the minimum payment go to pay the balance with the highest APR, it means the highest APR as determined by the interest rate stated in your credit card agreement or in the Schumer Box. It does not mean the APR that the bank gets when they add in your regular APR, cash advance fees and other account-related fees.

  21. John Q. Public says

    TFB: In the Macy’s T&C in effect when the SmartMoney article appeared, Macy’s stated they eliminated the grace period but would “return” the interest charged to those who “paid their balance in full on or before the statement due date.” Many people see a problem with paying cash for a concept only to have that money later refunded as underwear and socks. In any event, Macy’s has now changed their policy on statement credits and now will mail you a check upon consumer request.

    To answer your questions:

    1. Yes, a lender is entitled to interest unless it agrees not to charge interest, is prohibited by law from charging interest or fails to adequately disclose the interest it will charge in advance (i.e. Schumer Box).

    2. The interest charged is the lender’s money unless they have promised to return it to the consumer. In that case the lender is simply the custodian of the consumer’s money.

    3. The lender can choose to do whatever it likes with their money, but not with the money they are holding in safekeeping for the consumer. If the lender states they will refund a certain amount of money that was initially paid in cash, they cannot refund the equivalent in socks and underwear unless, of course, the consumer is free to pay their monthly statement with socks and underwear.

    A reputable lender, if they want to make a refund in socks and underwear, will state this upfront. “We will refund the money you paid us insocks and underwear” and not a simple statement like “We will refund the money.” Fortunately Macy’s is either a reputable lender or has suddenly seen the light and found religion since they have recently amplified their policy to specifically promise a check to those who call in.

  22. Harry Sit says

    John – Thank you for coming back. I’m glad we are finally in agreement. I don’t have access to Macy’s T&C at the time the SmartMoney article was published. I only had the article to go by. I don’t know if Macy’s said “we will refund as a statement credit” or it only said “we will refund.” I will give you the benefit of the doubt with regard to Macy’s T&C at the time.

    I get the impression you only object to the lack of upfront disclosure as to the form of the refund, not the form of the refund itself because you wrote if Macy’s said “We will refund the money you paid us in socks and underwear” it would be OK. Can I assume you would also be OK with Macy’s not refunding in socks and underwear to cardholders who don’t pay in full? That’s the crux of the SmartMoney article and my post. Does not refunding in socks and underwear to cardholders who don’t pay in full have anything to do with double-cycle billing? The SmartMoney article said yes; I said no; and you?

  23. John Q. Public says

    As long as Macy’s prominently discloses that their refund of interest collected in advance from those who pay in full will be made in socks and underwear, I have no complaint. I mean, yes, I think that would be a bad policy, but it is the merchant’s policy to make and if it upset me that much I would either find a way around it or vote with my feet.

    Basically I have no problems with a potential creditor saying they offer no grace period on purchases. Again, consumers who do not like the policy are free to take their business elsewhere — as I imagine many will — and sooner or later, I believe, the creditor will either adjust their business model or find themselves inundated with a portfolio of subprime borrowers.

    Aside from it now being illegal and, when not illegal, inherently unfair, I don’t have any specific problems with double-cycle billing per se. I have never carried a balance so interest rates, to me, are irrelevant.

    I am not sure if the behavior described in the SmartMoney article is really a disguised attempt at double-cycle billing or not. My understanding — and I may be wrong — is that double-cycle billing is only prohibited in those cases where a grace period is offered. I would need to see Macy’s T&C from that specific date to see what was happening. If Macy’s had double-cycle billing for those who had no grace period because they did not pay in full while having a grace period for those who did pay in full, I would think their conduct violated *in spirit* the intent of the recently enacted law.

    Actually, the whole double-cycle vs. average daily balance concept can be very confusing. I’d like to see someone present some common, clear examples on an Excel spreadsheet to dumb it down for us in easy-to-see terms.

  24. coastiegreen says

    I would also like to see a requirement that the creditor give a clear breakdown of the how the average daily balance was calculated per each bill.

    I was looking at my phone bill and internet/TV cable bill from Verizon. Sure it is 10 pages long. But it does give a clear break down of every penny that can be added up with simple adding machine if one took the time to look at it. No ambiguity there on how the total sum was calculated.

    Why can’t credit card companies be so transparent?

    Additionally, the new law was effective in my newest bills showing breakdowns of how long it takes to pay a bill off at a minimum payment and the sum total of that cost.

    The law did not emerge out of thin air. But it also did not go far enough. How do we get the drafter of that bill to make a second one that really addresses consumer needs? I know, I know, baby steps. The new law is a good start though.

  25. coastiegreen says

    “Why wouldn’t having the highest interest rate paid off first not be in the comsumer’s best interest?’ I would say generaly it is a benfit to pay off the higher first, but there may be some circumstances that it would not.

    It easier to jugle one ball instead of two. If for some, whatever legitimate reason, the you were not able to pay off the entire balance at the end of the month. It could be possible to have a situation where the lower interest rate has a lager balance than the higher interest rate. Over a period of time that lower interest rate balance could still add up.

    It is not unlike haveing two credit cards each with a different interest rate. One lower one higher. If can’t afford to pay both off in full, I would rather knock one out all togather to eliminate it despite the lower interest rate. And then concentrate on the smaller balance card with the higher interest rate. The card with the lower interest rate but the higher balance would just nag at me each month.

    All I am saying is that the consumer should have the flexablility to apply the payment as they sit fit.

  26. John Q. Public says

    Coastiegreen: I agree that in theory the consumer should be able to choose which APR his payment above the minimum due was applied to. I am wondering, however, what kind of administrative / accounting / legal nightmares this would cause for the bank though. I may be wrong, but I think the best we can reasonably expect is the bank having clear guidelines on how payments will be applied and we as individual consumers taking that into consideration as we manage our accounts.

    It would also be nice to see a spreadsheet with each credit card statement showing a breakdown to the penny. Meanwhile, if you look for the Federal Reserve Bank’s Regulation Z we can at least see a description of how interest is calculated.

    I think the new CARD Act also didn’t go far enough. Still, considering how far it actually did go and the resulting difficulties it has caused for a lot of people to get or keep credit, I think the best thing is for COngress to take baby steps and get involved in only those battles that involve clear deception and abuse on the part of the credit card companies. For most Americans credit is a lifeline — just like the blood flowing through their veins — while for the rest it is a very convenient product that makes life a lot simpler. Even though I don’t need credit, I would really hate to have it disappear.

    I could — again — be wrong, but in my opinion most credit card companies are actually pretty good. Yes, some without a doubt do suck, but by and large the ones I do business with have been pretty decent — fair, ethical and open. I don’t mind them making money.

  27. Sequin38 says

    I want to ask something. I paid off most of a card that I had previously done a balance transfer to with a lower rate of interest. The money was applied so that I still owed $101 on the BT part and $29 on the regular purchase part. I have continued to use the card and always pay way more than the minimum payment. So far this year, even with the new law, they have applied no money on the BT part which is about $44 dollars and fluctuates by a few cents every month. They continue to charge me interest on it. Since the new law says that anything over the minimum payment must be applied to the higher rate balance I would think that at least the minimum payment should be applied to the lower rate balance. Am I mistaken or do they have carte blanche as to where to put the money now. I am so annoyed I am thinking of just paying off the entire balance.

  28. Sequin38 says

    One other problem, my mom paid her citibank card in full last month and as soon as she received it. This month she received a bill charging her $1.69 in interest. Doesn’t this come under the double-cycle billing issue?

  29. coastiegreen says

    I don’t think the law specificaly says what you state in your post about the minimum payment being divided among the multiple rates as you suggest. The payment goes towards the higher interest rate balance no matter how much you pay. It seems strait forward to me. You might have got some bad information or misinterepted the implemenation of the new law.

    The $1.69 would most probably be the interest charged on the balance between the time your mom recieved the bill and the time the CC company recieved/posted the payment.

  30. Sequin38 says

    A misunderstanding perhaps…..I said that the law states that anything OVER the minimum payment must be applied to the higher rate balances first. I take that to mean that the minimum payment should be applied to the lower rate balance. This sentence was taken from MSN’s article on what the new law means to us.

    “Payments in excess of the minimum amount due must go to balances with higher interest rates first.”

    If this is correct then they should be applying the minimum to my lower rate and the balance to my higher rate. Unless MSN got it wrong or I am interpreting it incorrectly.

  31. coastiegreen says

    Ok, I see you point, the law says this, ‘‘(1) IN GENERAL.—Upon receipt of a payment from a cardholder,
    the card issuer shall apply amounts in excess of the
    minimum payment amount first to the card balance bearing
    the highest rate of interest, and then to each successive balance
    bearing the next highest rate of interest, until the payment
    is exhausted.”

    Congress is telling the Credit Card comany how they must apply the excess payment. The minimum payment is not addressed, so their is no restriction on how that is applied. How the mininmum payment is applied is decided by Credit Card Company and the terms of the agreement that you agreed to. Your assumption in this case is based on a misunderstanding with how you percieve the agreement between you and your lender. You will have to check with them. But they are not violating any law in this respect, since it is not addressed they can do what they want with the minimum. Particurly since the minimum payment is calulated by figured by a percentage of all the different varing sub interest rates into one payment. They can do what they what with it depending on your agreement with them. Check with the lender to see how the minimum balance is calculated and their probably a section there describing how THEY apply the minimum payment. I assume for the sake of simplicity your credit card company just applies entire minimum payment to the higher rate. It makes sense realy because Goverment should not be medeling too much into how buisness conducts a private transaction between and you and your lendor. And the lender doesn’t want to spend to many BTUs figuring complicated account managment in appling payments.

  32. John Q. Public says

    Most credit card agreements will state something to the effect that they apply payments over the minimum payment due to the balance with the highest interest rate and that the minimum payment is applied in a manner of the bank’s own choosing.

    I think you do have, however, the option of sending in a separate check and giving specific instructions on how you wish this payment to be applied.

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