Credit Interest Grab
As if credit card companies aren’t making enough money on the interest they charge, they’ve initiated new rules that let them grab even more interest.
Once upon a time, if you paid your balance off in full every month, you were changed no interest. If you carried a balance for one month because you missed your payment date by even a few days, but then stayed clean from there on in, you weren’t charged interest beyond the first month.
But now there’s a new interest calculation method in town, at least for some credit card clients, and if you are one of them you should be hopping mad about it.
I’ve recently been hearing about credit cards that do not stop calculating interest on their credit card balances until the cardholder has been balance free for two months. So I went looking and found who the culprits were.
To see how these two methods differ, let’s look at an example:
Polly didn’t pay her December balance in full, so she carried a balance of $1,000 from December. On January 10, she put her $2500 vacation on her card. She then paid her new balance in full by her due date of February 9. Here’s how the two different methods would affect her.
If Polly’s credit card issuer uses Method 1, she will have to pay interest only on the $1,000 carried over from December. She will get the interest-free period on her new purchase of $2,500, because she paid her current balance in full by the due date of February 9. If Polly’s credit card issuer uses Method 2, she will have to pay interest on the $1,000 carried over from December and on the new purchase of $2,500, because she carried a balance over from December.
That’s ludicrous! What a lot of crapola. So credit card companies who can’t make money of people like me because we don’t usually carry a balance are stooping really low to grab some interest.
Who are the offenders? The Bank of Montreal, the Royal Bank and CIBC. Shame you them. Such a blatant grab. Things must be looking pretty bleak on the bottom line, eh boys?
This is a mind-set that is catching. It is in line with the way interest is calculated by a number of American credit card providers including Amex Bank, Citibank, MBNA Canada and Wells Fargo Financial Corp.
If you want to see if your credit card is an offender, check out the comparison chart at the Financial Consumer Agency of Canada.
If your card uses Method 2 (boo! hiss!!) you can either:
- suck it up and don’t complain, because you’re choosing to use a card that is gravalicious (Jamacian for “greedy beyond comparison”)
- call and tell them just what you think and then go shopping for a new card.
I’m about to implement Option 2.
I think it is outrageous that because a number of other credit card companies have dubious interest-rate calculation policies, this means our banks are going to follow suit.
I think it is shameful that financial institutions believe they can just pull stuff over consumers’ eyes. Sure, they’ll say it’s in the cardholder agreement, but they know that since it’s printed in gray and in mouse-print, it’s unlikely that anyone will read it. We get used to things being a certain way, and then they change it, hoping it will get by most of us, and is does.
And I think it’s shameful that our friends, brothers, sisters, mothers, fathers, cousins, and whomever else we may love are being duped.
You have my permission to copy this article and send it to everyone on your email list. Do it! Let’s see how they like it when they start getting a b’zillion calls complaining about what stinkers they are.
Of course, if you can’t be bothered, don’t come whining to me later when the interest clock clicks on for your credit card because all the other lenders see how easy it is to take candy from you babies!
February 4th, 2008 at 6:55 pm
I called up BMO and cancelled my MasterCard and told them it was all because of their Method 2 money grab. I told them I’d be going with a credit union that uses Method 1. Thanks for the tip, Gail!
February 4th, 2008 at 7:19 pm
Thanks for the heads up on this one Gail.
Before I cancel my current M 2 method card at TD….. I am wondering if cancelling and opening up another credit card account will put a cloud over my credit rating?
February 4th, 2008 at 8:55 pm
That is so terrible. I hope some of the underpaid staff at the bank call centres fielding the cancellation calls will pass on the info to their supervisors… hey, another Holly!
February 5th, 2008 at 6:10 am
Patty, have you checked to see if your TD card uses Method 2? Make sure it does before you cancel. And apply for a new card before you close out the old one. As for your credit rating, closing accounts does impact on your credit score, but you shouldn’t let a crappy service provider hold your feet to the fire with that threat. Get a new card, get rid of the old one, use the new one in a healthy way and your score will be fine. Since you’re smart enough to pay off your balance every month anyway, you don’t have as good a score as the dopes who carry a balance and are WAY MORE PROFITABLE for the credit card company. See, smart doesn’t always mean highest score, but it’s still SMART.
February 5th, 2008 at 9:41 am
Hey Gail, thanks for the tip! I just checked and wouldn’t you know it, it says M2 under method. Evil! But I see they do offer cards with M1 as well, so perhaps I will just switch card types?
February 6th, 2008 at 11:48 am
The link to Financial Consumer Agency of Canada doesn’t work.
February 6th, 2008 at 2:55 pm
Mikey, it’s fixed now. They moved the page!
February 7th, 2008 at 9:16 am
Gail, very interesting information in this post that most people probably don’t know about. Who really reads those credit card agreements anyway…
On another note, have you considered doing a podcast? I think a lot of people might be interested in that from you.
February 9th, 2008 at 10:18 am
Hi Gail,
I did some checking and he’s what I found in the RBC Visa Classic II cardholder agreement:
(Source: http://www.rbcroyalbank.com/RBC:R63CuY71JsYAIWDUZ6o/cards/documentation/ch_agreements/ch_agreement.html)
“If you do not pay your New Balance in full on or before the Payment Due Date shown on your Visa Statement, you will lose your interest-free status for purchases and fees. In such event, you must then pay interest on all purchases and fees shown on that month’s Visa Statement as well as interest on all new purchases and new fees. Interest is calculated from the transaction date (for fees this is the date the fee is posted to the Visa Account) until the day we process your payment for the total amount you owe.
To regain interest-free status on your purchases and fees, you must pay your New Balance by the Payment Due Date. Interest on previously billed purchases and fees which has accrued since the end of the last Visa Statement period to the date payment in full of the New Balance is received, will appear on your next month’s Visa Statement.
We do not charge interest on interest at any time. ”
—-
Sooo, you are right again!
February 11th, 2008 at 5:58 pm
I have a BMO Mosiac credit card, and yes, they do charge the second month. At first I thought it was a mistake, so when it happened about a year ago, I called in. They actually reversed the charges. I have since called in two more times, and they’ve reversed the charges each time. The last time, the person on the phone was a bit grumpy about it. But I figure, Gail gets people to change the interest rates on their cards, why not this?
February 17th, 2008 at 1:50 pm
I am considering applying for a Capital One Mastercard as the rate is Prime plus 0.9%, however, I can’t seem to find out if it’s M1 or M2. I don’t see them on the Financial Consumer Agency of Canada website. Can you help me?
February 23rd, 2008 at 11:10 am
Here’s more highway robbery: I had always paid off my balance in full every month, but last month I accidentally shortpaid my $5900 statement by $120. This month I receive a statement charging me interest on the entire $5900 back to the transaction dates. So they told me whether I shortpaid by $1 or did not make any payment, I would be charged the same amount of interest. What can I do?
February 23rd, 2008 at 11:37 am
Christine: unfortunately, that’s how the interest calculation is done. If you always pay your balance off on time, you could call and tell them that you want the interest dropped or you’re going to move your business and see if that works. Good luck.
February 26th, 2008 at 8:25 pm
i too had a similar incident. i had underpaid by accident by a couple dollars (need… sleep… new… mom:). since we use our credit card like a debit card and pay off in full every month (for the dividend $$$), it had our entire monthly spending on it. they charged me the full previous balance worth of interest, even though i only accidentally carried a couple dollars.
it took a simple call and a friendly but firm ‘outta here’ and the interest charge was removed that afternoon. get this, transaction titled ‘customer courtesy’. ha!
February 27th, 2008 at 7:58 pm
I read the credit card agreement from front to back and nowhere does it say they could do that. I could understand if they charge me interest on New Purchases as per the agreement. But this is almost criminal, to charge interest on payments that you already made. No wonder people who could only make partial payments are being ripped off left, right and centre and find it difficult to get out of the credit card trap. I wrote a letter to CIBC Customer Care centre and their Ombudsman, demanding an explanation, and a revision to the interest amount. My issue is — I had already cancelled the card prior to receiving this last month, so maybe that’s why the three reps answering the phone didn’t offer to do anything to me. My plan is since I already cancelled the card — if they don’t resolve this to my satisfaction, they will never collect another penny from me. I couldn’t care less if they report the $120 shortpaid amount plus $75 interest to the credit bureau. In the meantime, if anyone has the Aerogold Visa card from CIBC and could point me to where in the cardholder agreement is this interest calculation practice stated, please reply on this board. Thanks.
March 1st, 2008 at 10:24 am
Below the response from CIBC Customer Care. It clearly contradicts their current practice (i.e…. “they owe interest on OUTSTANDING BALANCE (not the entire previous balance)….They’ll be charged interest for the previous transactions on their UNPAID / LATE-PAID balance, from the day those transactions were made…)
And yet, CIBC won’t admit that their current practice violates both the Cardholders Agreement and their Agreement with Visa. What a joke! The guy I spoke with was courteous and professional and agreed to reverse the charge as a goodwill, but still insisted that in the future, that’s how they’re going to do it. For future consumers running into the same issues, why would we have to waste our precious time calling their Call Centre, asking for the reversal of a wrongful charge, it should not have been charged in the first place!!! Once I got all my personal balances straightened out, CIBC Ombudsman will hear from me.
****
Good afternoon Ms. xxxxx.
I wish to thank you for allowing me the opportunity to review how interest is calculated on a Visa statement. I also wish to apologize that this matter has not been addressed to your satisfaction.
Below is the response that I have received directly from Visa:
Cardholders (c/hs) who always pay their full balance on time (i.e., transactors), always borrow money interest-free. Whenever c/hs make a late or partial payment, they owe interest on the outstanding balance, and they can no longer borrow money interest-free. As a result, c/hs will no longer have an interest-free status, interest will now be charged for every new transaction from the day it was made, until the day the full balance is paid off. C/hs can regain interest-free status by paying their full balance on time for two months in a row (i.e., 2 consecutive statements/cycles).
For example:
If a c/h made a late and/or partial payment on their previous month’s statement, then on their current statement:
They’ll be charged interest for the previous transactions on their unpaid/late-paid balance, from the day those transactions were made, and…
On current transactions immediately from the day they’re made until their full balance is paid off.
If the c/h pays off their full balance on the current statement and the next statement, they will be “transactors” again, and will not be charged interest on new transactions.
****
April 3rd, 2008 at 11:06 am
Hi Gail
Good blog gives us a chance to organize and seek changes in the way interest charges are currently being calculated by some major credit card companies. To get action we should send our complaints to the Competition Bureau and ask for an investigation.
I have sent the following complaint to http://www.competitionbureau.gc.ca
TERMS AND CONDITIONS OF CREDIT CARD USE
I have had a Bank of Montreal MC since 1977. I usually pay my bill in full by the due date and therefore have not been charged interest on my purchases. I have always been fully aware that if I missed a payment or was late with a payment I would be charged interest on the full amount of the purchases and that I would be charged interest on any outstanding balances. Recently I made a mistake and paid a bill in full but late by several days. I realized that I would unfortunately have to pay interest on that month’s bill. I discovered, however, that BMO MC has changed the terms and conditions, with respect interest charges. Now if you miss a payment or are late with a payment, even by several days, you no longer have the privilege of using MC interest free, for the next two months, even though you pay the bill on time for those two months you will have to pay interest on all your purchases. In other words, if I pay a monthly MC bill in full but say 3 days late then on every purchase I make using MC for the next two months I will be charged the high MC interest rate on all my purchases (11.9% or for some 18%).
This is explained in very fine print on the MC bill:
‘When We Don’t Charge Interest - We don’t charge interest on purchases when they appear on your Account statement for the first time if: “you pay your New Balance in full by the payment due date, and “you also paid the New Balance on the previous Account statement in full by the due date shown on that statement.
“In other words, to avoid paying interest charges on new Purchases, you must pay your New Balance for two consecutive months”.
I believe that millions of dollars of interest charges have been collected by BMO MC and other Bank card users from card users who unwittingly used their MC to make purchases in the two months after they paid their MC bill in full but several days late. For the next two months, even though they pay their bill in full, they still have interest charges on all their purchases. Many, as my wife, in seeing the interest charges will blame themselves and think that they must have made a mistake and paid it late. If Card users who usually pay their bill in full by the due date were aware that they were using very expensive borrowed money they would use another card or use cash until the two months had expired and they could again use their MC interest free when they paid their bill by the due date.
I believe a number of other banks have made similar changes to the terms and conditions of the use of their cards.
This stipulation was not in the original agreement I signed to obtain a MC card back in 1977. I was told by someone at BMO Mosaic that this change was introduced in May of 2006 and that MC customers were given two months notice of this change. I have, over the telephone, requested that the BMO MC office send me a copy of the notice we were supposed to have received.
1. I think that this change in the terms and conditions of use of MC is of such significance that MC users who obtained their MC prior to 2006 should have to sign off that they have read and agreed to the terms before BMO MC can charge these fees.
2. Further, I think that the monies collected by MC and the other credit card companies on the basis of this important change in the terms and conditions of the card, from card users who signed a credit card agreement prior to 2006, should be returned to these card holders for the agreement they signed did not include this change in conditions.
3. The credit card bill, should in bold print, make card users aware that “With this late payment they will now be charged interest on all their purchases with card for the next two months and that they must pay their bill in full by the due date to regain interest free us of their card”. Credit Card customers have a right to be informed in clear terms that the conditions of use of the card have dramatically changed for the NEXT TWO MONTHS when they make a late payment.
The rules relating to Banks and Lending Institutions have changed over time as regulations have been introduced forcing financial institutions to provide clear information with respect to interest charges so as to protect consumers. I think more needs to be done with respect to the use of credit cards
I appreciate that the issues I have raised are complex but given the monies involved and the potential exploitation of consumers I believe they warrant a full investigation.
Thanks for your attention in this matter
Rod