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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James says
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.
Lisa says
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
Sylvia Hicks, MPA says
Excuse you!
Customers do have a due diligence to read the fine print, but if sales people do not understand the terms and do not explain them correctly when asked because they’re not Finance specialists as you say, then how the hell do you expect consumers to understand it? This is exactly what predatory acts involve!!!
Predatory, deceptive, and misleading information needs to be eliminated!! Sadly, these practices are still in full swing 7 years after they became prohibited. Conn’s furniture is one of the retailers that does this.
Patrick says
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?
Nathan says
In response to the previous poster, personally I agree with the creditor in your case. If they disclosed exactly how much would be charged at the end, how much balance you had, and your credit limit how could you NOT do the math and realize that it would put you over the limit? To me that IS common sense. By your own admission they disclosed everything that you needed to know but because they didn’t do the simple math involved for you to understand your own balances you call that unfair?
I guess you may have proven your own point about your math skill though. If it will take you 30 years at $300 to pay down interest below your credit limit that is $108,000 in payments. I can not see that as a possibility. Perhaps you mean 30 months? Even that is $9000 in payments.
Also by your own admission they disclosed to you that if you did not pay off the balance within the 13 month period that you would be required to pay the interest for the entire period. Of course there is no minimum due each month. Thats the whole point of “No payments, No interest for 13 months”. You have the option of making payments on your own. You made the decision to not send them a check each month. They didn’t tell you to not send it, they just told you they didn’t require it. As the second poster said, take some responsibility for your own actions.
Amber says
Um this is not good for consumers you idiots !!!!
Now for people like me who used the 12 months no interest, no payments, same as cash programs who actually paid it off in 12 months, I can no longer buy something when I need it !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Once again middle class is screwed
Thanks liberals and Obama
WHAT A JOKE
Bill says
Don’t worry, smart lenders will come up with new financial products. Probably market interest only loans more and rebate the interest back if principle is paid in 12 months.
sh says
you mean predatory lenders
Investor Junkie says
Sorry TFB, but disagree. This is great for the irresponsible consumers. For the ones who used this to their advantage are screwed out of this. I don’t need a nanny to take care of me.
This means more consumers will have to wait until they have the cash to purchase the item. In itself I have no issue with this, but it will slow down some of the big ticket items people purchase. So the large consumer good companies will take a hit from this year and maybe long term.
Harry Sit says
Investor Junkie – Just to be clear, the manufacturer or the retailer can still offer 12-month same as cash. It’s just they can’t charge interest retroactively. When the 12 months are up, they can start charging interest on the remaining balance. Consumers can still buy the products without having saved all the cash. The new rules inject truth to advertising — no interest really means no interest. True, removing retroactive interest makes it more expensive to offer this kind of promotion, but if financing promotion moves products, they may still go for it.
Investor Junkie says
TFB, I assume you agree with time=money and discounted cash flow. How is charging interest retroactively not part of this equation? Let me ask you this question then, if you were to loan out money (let’s say a bond since I know you like them) wouldn’t you expect to get paid for holding the note? What this law (and what you are suggesting) is a interest free note for 12 months guaranteed.
Do most people pre-pay before the term is up? I assume yes, but where the bank/company makes up is the ones who don’t and therefore the high interest rate that comes with it. They must recoop the loaned out money somehow.
The other method then is retailers will increase costs instead to make up the difference in this law. Either way the consumers who know how to play the game will lose.
Investor Junkie says
TFB, just to be clear on my last statement when I say “increase costs” it could be the loan terms, or even worse the actual sale price of the product.
Harry Sit says
Investor Junkie – I totally understand. When they advertise 12 months same as cash, they create the impression it’s an interest-free note for 12 months. And for those who pay off in 12 months, it is. The new rules hold them to it for everyone. I already said it’s going to make it more expensive. I don’t disagree with you there. Consumers who know how to play the game were benefiting from those who don’t and who were tricked into thinking it was a no interest loan no matter what. Why pitch one group of consumers against another? Make it not so much of a game and let everyone play it more safely.
Investor Junkie says
Tricked? It more an issue of education than anything else. I currently have this on my 65″ TV, 0% for 12 months. It was explained VERY clearly to me what the terms were. That at the end of the 12 months, if I did not pay I would owe the interest for the past 12 months. The CC statement also does this very well.
The bigger picture is lack of financial education is the root issue. It should be up to the individual to figure this out. I donno how much clearer the terms could be.
When you say pitched, I see the reverse. It’s the ones who are responsible that are screwed, instead the irresponsible are given more of a “free ride”. Laws that typically try to “level the playing field” usually don’t work and cause unintended issues. In this case it will make it more costly for everyone.
DD says
Only one problem with the new way of doing the 12 month same as cash, I end up paying a lot more over the 12 months and then have to wait to get my interest paid back to me. Otherwords, this makes it a lot harder for the consumer to pay off the card balance in the required amount of time and the banks will most likely get to keep all of the interest that was paid. Example, I just purchased a mattress set for 3197.16 (nice set), I was told 12 months same as cash. I made a payment of $300; however, when my next statement came only 259.72 was placed towards my purchase and 40.28 was held out for interest. This makes it much harder for me to calculate a monthly payment to get the entire purchase paid in full by the required date in order to get all my interest paid back to me. Sounds like this benefits the banks, not the consumer. In the past I have done the same as cash purchases that were much clearer than my current statement. It would list out my interest that was being held in abayance and would give me a date that if I did not have the balance paid to 0, I would be required to pay the interest. The new way, does not even give me a date! I had to call and ask.
Tracy says
I totally understand about personal responsibility and I am a person who bought all new kitchen appliances and paid off my blanace before interest became due.
However, as an attorney I’ve seen countless consumers who who were taken advantage of. Not everyone has an education and they believe what they are told and don’t understand what they read. In one of my cases, my client made the timely payment for his no interest purchases via telephone. The credit card company’s clerk, not my client, transposed the account numbers for the bank where the payment was to come from and my clients payment was rejected. The credit card company is now trying to charge my client that one year of accumulated interest claiming he didn’t pay by the due date. He did.
It’s THEIR fault their clerk can’t type correctly. So now, I have to come in pro bono to clear this up. In the meantime, its showing up on his credit that he’s late on his payments, the account was closed and they’ve been playing all sorts of games to avoid talking to my firm. This will get resolved, but not before a lawsuit is threatened and they are reported to the state attorney general and FTC.
These banks really treat many consumers poorly. Some are lucky, myself included, and are treated well. However, anytime credit card companies see an opportunity to take advantage of someone who is not savvy — in order to make more money for themselves — they do. It’s sick and that’s why I don’t use credit cards anymore. If I can’t buy something outright, I don’t buy it.
Belinda Graber says
Does anyone know if a lender is required to send notification that the 12 months is coming due? I had eye surgery and my doctors office offer a plan through PFC for 12 months same as cash – got lots of letters from the company encouraging me to borrow more – but no notice 12 months was about to expire – called today for payoff and they added $500 interest to a $3,000 loan that was paid down to $1000 and told me that the time was up on May 25 and I should have known from signing the contract a year ago
Shelia says
Being a consumer of Lowes Home Improvement for over 15 years, paid on time, never late on payments, I used a deferred interest for 12 months on a product. My bank issued the check to pay off the balance. The check was issued on the date of the balance due, but did not post to my account until 5 days later. Now I am responsible for the interest. That’s all good and fine. But is it legal to charge interst on the interest balance? I am fighting a battle with GE Bank. No one will tell me if if’ it’s legal in their dept. They just bypass my questions and keep hammering at me to pay the interest…I finally stopped paying..period. Anyone with knowledge of this situation would be greatly appreciated.