Jump to content

Sign in to follow this  
deerfern

Does Creditor get more interest via Promo & purchases posting split?

Recommended Posts

Is it legal for creditor to charge interest on higher balance when there is also promo amount? I thought that was illegal now.

 

Basically I have two balances, a promo for balance transfer of 2.99% and a purchase balance APR of 14.65%.

 

My goal is that I don't want to pay interest on any purchases. I want to pay those off each month, and only have the promo interest be posted to my account.

But my creditor says that is not possible. Any payment over the minimum is automatically split between the higher and lower interest rates. Isn't that illegal now? Can't I ask them to reallocate the funds after they've recieved payment over the minimum amount? They say no.

 

I transferred a balance and then also made purchases, prior to the 1st statement cut. I also made payments almost completely paying the purchases amount, prior to 1st statement cut. Upon receiving the 1st statement, I was charged some small interest on the 1st statement, so that is not a big deal.

 

Since I've prepaid, they say I am in "Paid Forward" status, so no minimum payment is due. But I don't want that. I want to pay them the minimum, plus the total amount I've purchased so I don't have to pay the higher interest.

 

I was thinking it was a posting issue as I prepaid before the statement cut, but they say that has nothing to do with it.

 

So I asked them if now (since the statement's now cut) I make the total purchases payment amount (about $700), plus the minimum amount (about $75, already paid in advance, but I'll pay it once again if that fixes this),

 

Could they re-adjust my payments so the over minimum amount only goes to the purchase balance? They say no, it must be split between the two balances, so they get more interest.

 

So if I want to pay off the purchases amount of about $700 now, I have to pay them about $2,000.00, per their split figures. Then make no more purchases, or it will happen again.

 

Am I wrong? Are they right, they can do this?

 

I hope I've explained this all properly.

 

Thanks for any help.

Share this post


Link to post
Share on other sites

If you read the fine print on balance transfers, they all seem to work this way. Moral of the story: only BT to a card you don't plan to make any purchases on until the BT is paid off.

Share this post


Link to post
Share on other sites

The CARD act requires creditors to allocate any payment made over the minimum to the non promotional or higher interest balance first. The minimum is allocated to the promotional balance.

 

The exception to this is when you have a special deferred purchase rate (store cards like Home Depot, etc) and are two billing cycles from the promotion's expiration date - the entire payment is allocated toward the promo balance.

 

If you use the card while carrying a promo, you will always pay some interest, unless you pay each charge as they post and you've already made the minimum payment for that month. It gets extremely tricky trying to time this, so it's best to just not use a card when you're carrying a promo balance on it.

 

There are some nuances with some providers - Chase, for example, makes it very clear you will pay interest if you use the card and the only way to avoid that is to pay off the card completely, including the promo balance. Barclays, on the other hand, allows you to use the card for purchases without interest as long as you pay the minimum and the entire net of new charges each month. I still haven't been able to completely figure out Citi but I have deduced they work like Chase.

 

Who is the creditor? My curiosity definitely peaked on the scenario you provided where they quoted $2k to stop interest on the non promo balance. Does that amount equal all interest charges, the purchase balance, and the minimum payment amount? If so, they're following the law to the letter and consider yourself fortunate that you can stop non promo interest by doing this as some providers don't even provide that courtesy.

 

As someone else said so well, don't use cards for anything other than the promo.

 

Here are a couple of links to read more about what the CARD act states about payment allocation:

 

http://www.bankrate.com/financing/credit-cards/clarification-on-payment-allocation-rule/

https://www.law.cornell.edu/cfr/text/12/226.53

Share this post


Link to post
Share on other sites

Andrew, thanks for the detailed explanation. The creditor is Navy Federal CU. The BT was $4300.00. Does it sound right?

 

It's interesting that I could possibly make a payment each time I make a purchase and it posts. I could certainly consider doing that.

 

I just thought since I BT's $4300, and purchased $700, a payment of $2,000 was extreme. But perhaps not?

 

So this is the way they get out of posting the payments to the higher interest?

Share this post


Link to post
Share on other sites

 

Andrew, thanks for the detailed explanation. The creditor is Navy Federal CU. The BT was $4300.00. Does it sound right?

 

It's interesting that I could possibly make a payment each time I make a purchase and it posts. I could certainly consider doing that.

 

I just thought since I BT's $4300, and purchased $700, a payment of $2,000 was extreme. But perhaps not?

 

So this is the way they get out of posting the payments to the higher interest?

I agree. $2k does not sound right at all. At most, it should be $700 + min pmt + interest charges. Credit Unions can be strange beasts and I have no experience with Navy. But, quickly looking at their Cardmember Agreement (https://www.navyfederal.org/pdf/applications-forms/credit-debit/NFCU_573CC_NFO.pdf) provides information that contradicts what you were told.

 

(Side note: paragraph 5a is the infamous Cross-collateralization clause which gives them the right to use any of your deposits at their institution to pay unsecured debt if you default. While I am neither anti- or pro-credit union, this clause makes me very uneasy and keep my money at a bank, rather than a CU, although I have a DCU credit card and auto loans.)

 

Back to the topic: Not exactly sure how you can bypass frontline CS, but I think you should call back and specifically ask them to show you how paying $2k remedies your situation. Make them show you how that math works. My guess is someone pulled that number out of thin air because they figured it would provide enough of a cushion to wipe out the purchase amount. Specifically ask them how much of the payment above minimum still goes toward the promo balance despite the fact that the card agreement indicates otherwise. Continue to escalate and insist that someone who can explain how that doesn't violate their agreement call you back.

 

I went round and round with Citi about this and how they calculate average daily balances because the math in their agreement never matched what came out on their statements. I spent hours trying to figure this out and even screen shared my calculation spreadsheets with folks pretty high up who always said "yep, yours looks right and I can't explain why ours is different." It shouldn't be that difficult! Ultimately how I fixed the problem is I asked them what the balance was on the BT (0% rate) at that moment, stopped using the card, paid the minimum + (balance - promo balance) + (daily interest rate * purchase balance) + previous month's interest + $20 cushion. When the next statement cut, it showed residual interest and that month's payment was the minimum + residual interest + $20 cushion. After that, no more interest. It was so much of a headache for me, that I decided to just SD all BT cards so I wouldn't be paying interest. Gives me a headache just thinking about it again!

 

I would highly recommend that if you try the "paying the charge as soon as it posts" that you do it with one smallish amount, pay the min + small amt, and then check your statement. Ideally, though, use another card for your everyday purchases until you finish paying the BT.

 

Strictly on principle, they should be able to easily explain this to you. It's not rocket science, just basic math. But, unless you know their secret sauce formula, you probably won't be able to stop the interest. Good luck!

Edited by AndrewW

Share this post


Link to post
Share on other sites

"Payment above minimum" doesn't mean anything. Payments are allocated to pay off all unpaid interest (from whichever source) first, and then the balance. Which should be your highest APR balance.

Share this post


Link to post
Share on other sites

"Payment above minimum" doesn't mean anything. Payments are allocated to pay off all unpaid interest (from whichever source) first, and then the balance. Which should be your highest APR balance.

Thanks for adding in your clarification, although I'm not completely sure why my previous statement is boldly generalized with a "doesn't mean anything." While I agree that I could have been more precise with my wording (using "in excess of" instead of "above"), I respectfully disagree with what I perceived as a blanket statement that my information was incorrect.

 

I have read every single card agreement for all my cards multiple times and each one has some variation of this: "payments made in excess of the minimum payment are generally allocated..." While each issuer is different, the general formula for calculating minimum payments is either a fixed percentage of the balance PLUS accrued interest or a larger percentage of the balance. I have spent dozens of hours making sure I understood this when I was in a situation similar to OP, which is why I offered to share my experiences.

 

As you stated, interest charges are paid first. The remaining portion of the minimum payment is allocated to whichever balance the bank chooses, which are typically those with the lowest APR, since that is financially more profitable for the bank. The CARD act allows them the latitude to do this. What it prohibits, though, is the allocation of payments made in excess of the minimum to lower APR balances first. They must apply those to the balance with the highest APR first.

 

For instance (all numbers are hypothetical): my ending balance for the month is $2000 ($500 at 15% and $1500 at 3%). Interest charge is $25. Total outstanding balance is $2025. Minimum payment is $100.

 

Let's say I make a $200 payment. It's allocated as follows:

$25 to pay off the interest charge (as you stated)

$75 toward the balance with the lowest APR ($1500 at 3%)

This takes care of the minimum payment allocation.

There is $100 left that is considered above and beyond (or in excess of) the minimum payment. It's allocated to the $500 balance.

 

In the information you provided, you imply that the $25 in interest is paid first, then the remaining $175 is allocated to the $500. Not the case for any card agreement that I've ever read.

 

If you're still not convinced, read the agreement, particularly the section "Payments," and how they apply them for a Citi AAdvantage card: https://www.citicards.com/cards/acq/cmaView.do?PID=161&cma=true&locale=en_US

 

"Application of Payments. Payments in excess of the Minimum Payment Due are applied in accordance with law. This means that we will generally apply payments in excess of the Minimum Payment Due to balances with higher APRs before balances with lower APRs. We generally apply payments equal to or less than the minimum payment due and credits to lower APR balances first."

Share this post


Link to post
Share on other sites

Moral of the story: If you use a card for BT, don't use it for purchases while any of the BT balance remains on the card.

Share this post


Link to post
Share on other sites

Moral of the story: If you use a card for BT, don't use it for purchases while any of the BT balance remains on the card.

Well stated!

Share this post


Link to post
Share on other sites

"Moral of the story: If you use a card for BT, don't use it for purchases while any of the BT balance remains on the card."

 

Or, another take.

 

I have a Chase Freedom with a balance transfer balance of a couple thousand at 0% interest.

 

I used it a bunch last quarter for restaurant 5% bonus points.

 

I just logged on every couple days and paid off the restaurant purchases plus a couple dollars.

 

At the end of the month, my interest was about $1.50.

 

I don't mind paying $1.50/mo in interest, and fussing to make payments 2x/wk, and losing the interest-free grace period I'd otherwise have on those restaurant purchases. It's not much trouble, and it allowed me to use the same card for both a 0% loan and 4 bonus rewards points per dollar.

 

All depends on what they payoff is, and how much you mind fussing around with multiple payments.

 

MP

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  




  • Today's Birthdays

    1. pks3541
      pks3541
      Age: 63
  • Member Statistics

    • Total Members
      178,020
    • Most Online
      2,046

    Newest Member
    sterngegill123
    Joined

About Us

Since 2003, creditboards.com has helped thousands of people repair their credit, force abusive collection agents to follow the law, ensure proper reporting by credit reporting agencies, and provided financial education to help avoid the pitfalls that can lead to negative tradelines.
×
×
  • Create New...

Important Information

Guidelines