Residual Retail Finance Charges

[Headset Hellion]

Just out of curiosity, is it not common knowledge that a credit card's statement balance might not be the account payoff amount? I ask because I had a SC today who was VERY upset to learn this, and said he will probably close the account.

His opinion is that it's "criminal" for the bank to show a current balance on the statement but have a different amount for the payoff. He doesn't think that the bank should charge interest between the statement closing date and the payment date. This is not a policy with my bank; this is standard practice industry-wide, allowed by federal banking regulations. It's the same way if you have a car loan: you have one amount as your current balance as of the statement closing date, with a higher amount as your payoff to account for that residual interest.

I can understand his frustration but every statement for the past 6 months showed additional interest being charged...which was caused because they've made 3 payments late during that time. If the balance had been paid in full, ON TIME, then there wouldn't have been any interest charged on purchases. The statements also explain how the bank calculates interest charges, minimum due, account balance, etc. It is a bit wordy but it's very thorough and not "fine print." It's on the first page in the same font and text size as the rest of the statement.

I would be more sympathetic about the confusion if this customer was young, using their first credit card, etc...but this person was middle-aged and has had multiple credit cards for YEARS. Banking regulations have actually become much more favorable to customers since the CARD Act was passed in 2009, and continue to improve.

Am I being unrealistic in thinking that it's pretty common for interest to be charged on a loan/credit card balance? I know SCs don't make it a habit to actually read the terms and conditions before signing off on the agreement...so how much of the customer's dissatisfaction is the fault of the bank?

[Sapphire Silk]

People just don't think.

When you use a CC you are borrowing the money. You pay for the privilege by paying interest. Now setting aside the fact many banks and CC companies screw over their customers, the fact is, you pay to play and that part is actually fair.

The clock doesn't stop ticking just because a bill get sent out. If you don't want to pay the interest, find out what the payoff amount is and pay that. Otherwise, quit your bitchin'

[MadMike]

Just out of curiosity, is it not common knowledge that a credit card's statement balance might not be the account payoff amount?

I got into an argument about that sort of thing back when I was still with my ex. My card was always maxed out, a lot of which had to do with her running up the bills and not keeping a job. One month, I made a $100 payment to it. She thought that meant I now had $100 available on it, and no explanation of finance charges could stop her from thinking that I was the stupid one.

Then again, I was the one who stayed with her, so maybe I was the stupid one.

[Javarod]

It is somewhat odd i suppose, you pay your bill monthly (any financial agreement really), so you would assume that the interest is on a monthly basis, not a daily basis. As this isn't my first rodeo, i'm aware that its calculated daily, but still its a bit confusing.

[notalwaysright]

I remember getting my first credit card and reading all the initial paperwork... I noticed this right away. Of course, they may have made this more clear in recent years. (I haven't had credit for very long) And I really read everything. I hardly ever carry a balance, so I rarely get charged interest. I know, this is not how many/most people use credit cards. I just use mine to build credit. Regardless, YOU didn't make the rules, so it's pointless so act out at you. I can't think of any situation I've personally been in that would have been helped by getting mad at the customer service rep.

[Gilhelmi]

I agree with notalwaysright. People already should know this, because people should be reading the contracts they sign. As far as I know, all interest (on lines of credit) is calculated daily, and interest on savings/CDs is calculated on a period of time (average over 3 month, for example).

This is written down in the paperwork that we sign when opening these accounts.

[sirwired]

It's not entirely out of line to be confused. For many years, the deal with credit cards would be that if you PIF, there'd be no finance charges the following month. At some point (mid '90's or so) some, but not all, credit card banks switched to "dual-cycle" billing, so you end up paying finance charges the month after you pay off your balance. This "takes back" your finance-charge-free "grace period" if you ever carry a balance.

Even today, most banks do not use this method, and while it's disclosed on the TIL statements, it's actually not that easy to understand until you see it in action.

[mathnerd]

I'm pretty sure I explained this very thing a few thousand times during the few months I worked in loans and lines at MajorBank, in spite of the fact that there was a huge, bold print notice on every page of the bill that stated that the amount stated on the bill was not the payoff amount and to please call the given number to obtain an accurate payoff. Also, our online system was set up so that if you tried to make an online payment in the exact amount of the account balance, a splash screen would appear saying something to the effect of "The account balance shown is not the payoff amount. If you would like to pay off your account, please call <number> to obtain the correct payoff before proceeding. Would you still like to make this payment?" And yet every day at least one person in my department would get a phone call from a banker who had an irate customer in the branch. *sigh*

[Headset Hellion]

It's not entirely out of line to be confused. For many years, the deal with credit cards would be that if you PIF, there'd be no finance charges the following month.

That is what we do...if you make your payment on time. At the COB on your due date, the system updates and automatically adds a late fee if no payment has posted. Interest charged isn't calculated until the billing cycle closes. Even then, it's based on the average daily balance that revolves into the next billing cycle. SCs never think to account for that late fee, or the fact that every day after that late payment is technically accruing interest...it might not be charged immediately but the number of days is used to calculate the amount.

SC has 25 days after the closing date to make a payment. I think that's plenty of time, especially today with all of the electronic/online options available. How can someone receive a statement every month for 6 months, make note of the balance and make payments, but miss the late fee and the amount of interest charged??? Then again, I was talking about a SC who's made 3 late payments during those 6 months...

I guess my main complaint is that SCs are so quick to blame the bank instead of accepting any personal responsibility for their own actions. I know..that's just a pipe dream...

[manybellsdown]

I agree with notalwaysright. People already should know this, because people should be reading the contracts they sign. As far as I know, all interest (on lines of credit) is calculated daily, and interest on savings/CDs is calculated on a period of time (average over 3 month, for example).

This is written down in the paperwork that we sign when opening these accounts.

It's not even just the contracts; it's plastered all over my online banking that the current balance on my card may not be the full payoff amount.

[Ironclad Alibi]

I guess my main complaint is that SCs are so quick to blame the bank everyone else instead of accepting any personal responsibility for their own actions. I know..that's just a pipe dream...

I made the obvious correction to your last statement.

[bankworking]

Whenever I do a debt consolidation loan to payoff credit cards, I warn people that the statement balance is not likely to be the payoff because credit cards generally charge their interest at the end of the statement period. I let the customers know that they will likely receive another credit card bill for that final interest charge.

It's hard to believe how many people are surprised. I make damn sure to explain that my bank's cards work that exact same way for balances not paid in full every month. And if you have a cash advance or balance transfer balance, you don't even get the chance to pay it off in full the next month and avoid that interest charge.

[Headset Hellion]

I spent 30 minutes trying to explain, to a grown-ass woman, that interest will be charged on a credit card cash advance. She could not grasp the concept that the bank doesn't just give away money for free.

She seemed to think that the transaction fee was used towards paying back the cash advance, and didn't need to be paid back itself. She also seemed confused as to why paying the minimum due, to a grand total of $140, hadn't paid off a balance of $900...not including interest.

More than 30 minutes...I still don't think she understands what interest is, or why it's charged by banks...despite the fact that she indicated having other credit cards.

[otakuneko]

I don't think it's common knowledge, no.

I pay the full amount each month so there's never any interest on my bill. Once, I missed a month. Didn't get the bill, forgot about it, whatever. I grumbled and paid it off, interest and all, when I got the next bill. I was surprised enough when the next bill after that still had interest on it that I called the bank. They explained it to me. I wasn't happy with it but what are you gonna do?

My mortgage statements (and online payment site for said mortgage) clearly state, under "total amount due" (where it shows the total principal, interest, and escrow) that.. "This is not a payoff amount."

I've never seen such a statement on a credit card bill, but if I wanted to pay off and stop using a card, I would know that:

1) I have to pay off the current month's bill
2) Stop using the card
3) Pay off the next bill. (and if I really wanted to drop the card entirely, I'd call the issuer at step 2 and cancel it, thereby shortening the lag time between steps 2 and 3)

Before being done with it.

[mathnerd]

I don't think it's common knowledge, no.

It should be. What frustrates me is I got into trouble every single year with the principal at the school where I taught for spending "too much time" on my consumer finance unit. The very unit where all this is covered. *sigh* I did it anyway, because I thought it was important, but most teachers don't have the balls to defy their admins quite so openly.