Credit Cards: Interest Rates

blog creditcards

How the credit card companies soak the consumer with interest.

I have been getting a flurry of letters from my credit card companies citing new terms. They are long and cumbersome to read. I am sure few people do; I did not. However, there is a very important change in the way they charge interest. I discovered it when I underpaid my card at the end of a billing period by only $400, in error.

I always pay my card off when due. I know many people cannot, and for many years I could not. In the past I know, once you do not pay in full on the due date, interest is charged, at rates ranging from maybe 8% to as high as 30%. The card companies are limited to what they can charge by the state they are incorporated in. Many incorporate in Deleware because they allow 30% to be charged. Rates vary according to the creditworthiness and payment history of the borrower. Sadly, those who struggle to pay often see their rates raised to the maximum 30%. And of course they wind up in the never ending cycle of paying terribly high interest rates to the billion dollar banks, many of whom got bailed out during the financial crisis. But that’s another story.

For those who pay the entire balance when due, it is actually a good deal. You get billed for all charges from 1-30 days prior to the bill date, then get another 3 weeks to pay. So a free use of money. These banks borrow from the Fed, or pay their depositors maybe 1-1.5% per year to use those funds, and then charge a rate from 20-30% per year to those unfortunate enough not to be able to pay their bills in full when due. OK, they lose maybe 5% a year to write-offs (those who go bad and never pay). But still an immense profit center.

But here’s what happened to me. By short paying my bill by $400, according to their new rules, they then add an interest charge, not on the $400 I did not pay from the due date, but, get this, on all the charges on the bill (it was close to $5000--I put my business expenses on this card) and they go back to the date of the purchase, not the date the payment was due. So for that $400 error I was charged over $300! That’s their latest ruse to soak those who can least afford it.

I was able to call and convince them to undo the charge which they did, when I quickly paid the forgotten $400. Lucky me. I don’t think they would do it a second time. And I must say this card carrier, maybe the largest in the US, Chase, has a very helpful and courteous staff of operators, not nasty like you might expect.

I wish I could wave a magic wand and have everyone pay off their old balances, and pay for their purchases every month. It is a shame how much it is costing them and how much better their lives would be without credit card debt, which makes these billion-dollar bankers richer. They must laugh their way to the country club every day musing about how easy it is to make so much off the backs of the working poor, and those that simply do not manage their finances well.