How did a $10 unpaid balance on my credit card for one week result in $140 in finance charges over two months? Read on.
A $10 typo
Last November, the full amount due on my credit card was $320. Unfortunately, I made a typo while paying the bill online and paid $310. I realized my mistake and paid the remaining $10 on December 8, a week after my due date. Meanwhile, before I had made either of these payments, I made a purchase of about $5,000 on the same credit card, which was within my credit limit.
A reasonable person would expect that interest on my $5,000 charge should have been due had I not paid by January 1. However, since I had not paid the previous balance in full, the credit card company started accruing and applying the interest right away. On December 9, the end of the statement period, I got a payment due email. I did not review my statement closely and missed that the credit card company had applied a finance charge of $67, by calculating the average balance as $5,100, instead of only $10.
By December 28, I had paid the full balance on my credit card. However, the finance charges continued. In my next statement, dated January 9 and due February 1, the credit card company charged another $73 in interest. This time, the statement caught my attention.
I paid the full balance (interest charge and all) immediately, and called the customer service number on the back of my credit card.
My APR is 17%, so the math should have been $10 principal for 7 days at 18.5% APY, or roughly $0.04. Instead, the credit card company calculated a finance charge of $67 based on statement balance of approximately $5,100 in the first month, and finance charge of $73 on statement balance of $600 in the second month, both calculated at 17% APR and using the Average Daily Balance method (which resulted in a principal that was different from the statement balance that month). In total, I got slammed with $140 in interest over two months for $10 that was overdue for only seven days.
Credit card fine print
The terms and conditions of my credit card, which I read after I got billed $140 in finance charges said, "We will not charge you any interest on purchases if you pay your entire balance by the due date each month. We will begin charging interest on cash advances and balance transfers on the transaction date." This meant that charging interest on the $5,000 in new purchases right away was legal, even though it was unfair.
Credit card customer service
Rather than file a credit card complaint with a regulating agency, I dialed the customer service number on the back of my credit card. I demanded how I could be charged $140 in interest on $10 principal that was outstanding for seven days. The customer rep was courteous. She told me the interest does span across two business cycles, but that she would remove them based on my outstanding credit history. Unfortunately, it took another call and another courteous rep to finally get the $140 finance charge removed from the account.
Public credit card complaints
On June 19, 2012, the Consumer Financial Protection Bureau (CFPB), which was created as part of the The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") to "protect consumers of financial products or services and to encourage the fair and competitive operation of consumer financial markets" launched an online database on credit card complaints from individuals. The agency had begun collecting consumers' credit card complaints in July 2011.
In addition to a searchable database of recent consumer credit card complaints by zipcode and credit card company, the CFPB also published a snapshot of over 45,600 complaints it received through June 1, 2012, 16,840 of which were related to credit cards.
Since I never filed a complaint, and my interest charges were dropped, you won't find my complaint in the CFPB's online complaint database. While I have learned my lesson and pay closer attention to my credit card usage, I am happy a public forum now exists where credit card consumers can air out their grievances and track the response received from credit card companies. After all, it is time some sunshine was shone on abusive practices by credit card companies.
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