CM:

Hi,

This is my first post and apologies if the subject has been raised previously.

I normally settle my credit card sum in full each month to avoid interest. Two months ago, due to holidays, I miscalculated and underpaid, accruing some interest (Month 1). This I understood and increased the next payment (Month 2), to exceed the combined amount for purchases and interest.

When receiving the statement for (Month 3) it started with a small credit due to the above overpayment. However the credit amount was reduced by the application of further interest. The final total was an outstanding debit amount resulting from subsequent purchases, since the last settlement.

When querying this with my card issuer I was advised that when the card is not settled in full, interest is applied on the TOTAL amount spent on the statement from the start of the period, rather than the amount outstanding. This SAME STARTING POINT for interest applies until the interest is paid in full - hence the further interest on the second statement. The customer service adviser indicated that it normally takes around two months to avoid further interest in these circumstances unless further early payments are made.

It appears that part payments of this type do not avoid interest still being applied to the proportion of credit that has in fact been settled. I interpret this approach as applying interest to debts that have been repaid. I was not aware of this from the myriad of conditions and processes and am wondering if anyone else has similar experiences

CM

Seeing the interest charges over two subesquent statements can be explained through "residual interest"

The interest begins to accrue from the day of the purchase until the balance is cleared in full. Providing this is done on or before the due date on the following statement then no interest is actually charged. When you make a part payment then the interest you normally wouldnt see is applied from the purchase date up until the day the statement is printed and is shown on that statement. This interest then continues to accrue until the balance is cleared in full. The final interest charge should be the amount accrued from the previous statement printing date until the day the balance is cleared. This then shows on the following statement. Interest on amounts paid in should stop on the day the payments are received but continue on the remaining balance (but this may vary between lenders, i think!)

I'm led to believe this form of residual interest charge was introduced by Barclaycard and then others followed suit.

I notice on one agreement I have (Halifax), there is one implied qualification to what I said earlier. The principle is that part payment would indeed stop the interest running in respect of the part payment amount from the moment they receive the payment. Ie interest on full amount until payment is received, then the amount left. BUT the qualification appears to be in their reference to "transactions". Ie only fully paid off transactions stop having interest applied. So if you had one big transaction of, say £10,000 and paid off £9,999, you would pay interest on the £10,000 until the final £1 was received. Whereas if there were 10,000 £1 transactions, then interest would stop on the £9,999 when they received the payment (because those 9,999 transactions were now full paid off). In this case you'd be better off - you'd pay interest on the £10,000 until the the payment was received, and after than interest on £1 until the final £1 was received.

OK let's see what they say, if they can be bothered to properly explain their method! On the rare occasions I've had to pay interest, the more "generous" method I explained earlier has applied.

Lawman,

I started (unfortunately) this post, and have been interested in the latest responses, particularly relating to the statement "you only paid interest on what was owing".

I was advised that where part payments are made, interest is applied to the total amount on a statement and not only the balance. My own calculations suggested this was the case and it has again been confirmed by my card issuer. However, when speaking to them, the call centre operator could not explain the specific interest calculations as they were not visible to them! A detailed statement is being dispatched by post. I await the information with interest.

CM

The consequences of a missed payment can be severe. The worse case could be interest for 59 days.. But if the APR is 15%, the balance around £1100, and the interest £50, something doesn't add up.

Frankly the IT can be just wrong - and not always be in the bank's favour. Last year I did a BT onto Nationwide VISA. I never got charged the fee, despite it being in the terms and conditions and being informed of it by the telephonist at the time. And as I reported on another thread, I'm currently paying 21p a month to Natwest because of IT not quite joining up.

All academic of course, since you got your refund. But I would always check that a significant interest charge is within the terms + rates that a bank is purporting to apply. Whether the terms themselves are legal/reasonable etc., is another matter.

It is a sad fact that 20 years ago, the UK was turning out fewer than 50 software engineering graduates a year. So in 2009, many commercial organisations (and governmental departments) that depend on IT lack the proper skills at middle/senior management level. OK I'll save that hobby horse for somewhere else.

lawman thank you for trying to clarify things for me, it is appreciated. Unfortunately the events that you describe and the sums involved just don't add up to what actually occurred. 15% APR over a few days at the sums involved for one billing period doesn't equate to £50. There was no interest charge for the following month owing to the refund. Perhaps I should have got you to discuss the sum involved with the card company!

Thanks for your interest..

Booners my old buddy:

I am very well educated and highly numerate, so not too sure how the education bit applies to me - unless of course you were trying to be insulting, which I'm sure your not,. The reality is that the terms and conditions send to applicants often runs over several pages, is very small in print size and often ambiguous in content. I am not convinced that this isn't actually done to both confuse the reader and wear them down into giving up reading the contents fully. This can hopefully be simplified for semi-literate people like myself.

My point relates purely to the credit card system and not bank finances generally. The credit cards make absolute fortunes for their operaters. The problems facing the banks has nothing to do with poor credit cards profits but other foolish financial ventures such as sub-prime lending that banks got involved in and now expect the rest of the population to bail them out of, as I'm sure you are well aware.

I am genuinly glad that you work for a bank that makes a profit, I just trust that it is a genuine profit unlike somee other sectors of your profession. Keep up the good work and start lending some of that profit to those businesses that need it.

3)

"I was advised by the company that had I underpaid by a single penny, then the interest is charged on the full amount of the bill for the full period".

You would only have paid interest from the transaction date to when they received payment. Since you made a part payment, interest on this amount would only have been charged from the transaction date to when that part payment was received. Interest on the shortfall would go on being charged until that was received.

You only paid interest on what was owing.

Sure you would have been "let off" this amount had you made full payment on time.

Oh yes - can't wait till after the court case when all of those like my self who don't incur charges will have to pay for banking to cover those who can't manage there own money (and yes I agree Banks could make it easier but some personal responsibility in this day and age would not hurt).

Credit Cards are exactly the same - what happens is if these rules change (and it is made fairly clear by most providers that you have so many interest free days if you pay the full, note full balance) - then all those who again use there credit cards correctly will have to pay more interest and more fees to cover for those who don't - definatly something too look forward too.

I will admit that a) The banks should make the rules clearer but i'm not sure how you can force people to read things b) If the education system wasn't so poor in England mayby it wouldn't be so much of a problem c) Where are these banks making mega-billions profit - all i have seen is banks making mega billions losses so mayby the fees and rates are too low d) I do work for a bank , a bank that makes money - I have incurred fees and charges at times myself but I know that it is my fault and i read my contracts

Appreciate you correcting me on the 1.8% lawman, I now appreciate why these companies only make multi-billions profit not mega-billions profit. Also I didn't as you state 'lose the opportunity of getting free interest' as I had all my charges refunded in full following my complaint to the card company.

Seriously though, I have no problem paying interest on money that I owe, I just object to paying interest on money that has been repaid. The total amount for the card bill wasn't on the bill from day one of that bill, only for a few days at the end. As explained previously, I was advised by the company that had I underpaid by a single penny, then the interest is charged on the full amount of the bill for the full period, a totally disproportionate reaction. The fact that something is written down somewhere may claim to make it legal, it doesn't make it reasonable. The current court case over charges that banks have made in the past to their customers ia a good example. Maybe its about time more people challenged credit card charges and their relatively high interest rates - now there's an idea !

"credit card companies get paid about 5% commission on each sale for handling payments under their terms and conditions with retailers" - well not from my business they don't. They get 1.8%.

"If you really consider that an accidental underpayment of £2 on a bill of over £1100 warrants an interest charge of £50...".

No, the accidental underpayment doesn't warrant it. The £50 interest is on the £1100 balance for a up to a few weeks. By underpaying the full amount, you lost the opportunity to get this interest free. If you choose to see it another way, then that's up to you.

Well booners, I have always paid up in full and credit card companies get paid about 5% commission on each sale for handling payments under their terms and conditions with retailers, so they have made plenty out of me over many years. The microscopic multi-page terms and conditions provided by companies are far from clear and precise by design. When I asked for the location of the applicalbe paragrah on interst payment no one at the card company even knew where it was, so much for clarity !

If you really consider that an accidental underpayment of £2 on a bill of over £1100 warrants an interest charge of £50 then I am indeed a whinger and glad to be one. Obviously from the tone of your correspondence you would be happy to pay up to 100% interest under these circumstances and keep the credit card company executives in the luxurious lifestyles that they are used to. Keep up the good PR work on their behalf. I am sure all the other correspondents on this site are in full agreement with you and are now only too willing to pay credit card companies anything they ask for.

richdawat,

Thanks for your response.

I am thinking of changing my credit card, but will be very careful about understanding the application of interest, to avoid such "rip-off" terms,

CM

You can’t win with these people, they don’t seem to understand reasoning; if the computer say’s you’ve underpaid, even by one penny, that’s it. No accounting for whether you’ve never defaulted for the last twenty years or so.

I listed a grievance I had with the “Post Office”, whereby they charged me seven pounds interest. Not a great sum I know, but it was the principle of the thing I objected to.

They responded (24/12/2008) saying that as I was unhappy with the DD amount my complaint would be passed to “Customer Care Team” for a full investigation.

Tenth of February I received a reply. We have conducted a full investigation in to the issues and find that as the full balance was not cleared, interest was charged on the remaining amount.

So much for customer service! The amount was only for seven pounds and for that, they’ve lost a good paying customer.

Glad you argued your case through, and got your refund; tenacity pays in the end.

Owen32

CM, I had a similar case recently with the M&S card. I sent off a cheque for what I thought was the full paymant at over £1100. I was in a rush to get out when wriring the cheque and underpaid by £2 (yes two pounds). My next bill showed an interest charge of nearly £50, being interest charged on the whole amount owed for that month.

When I contacted M&S they assured me that they were correct in charging me nearly £50 and refered me to an ambiguous clause in their terms and conditions which could mean whatever you wanted it to mean. I argued my case and eventually they refunded the £50 as a goodwill gesture. During my arguements, they admitted it would have made no difference if I had underpaid by just one penny, I would have still faced the same interest charges.

In my opinion this form of interest charging is little more than acting like legalised loan sharks. The card company pretends to charge a 'reasonable' APR on money owed, but in fact charges APR on all money spent which makes the real monthly APR about 1000% in my case. Totally unacceptable and immoral, regardless of hoe 'legal' it is claimed to be.