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.