May 19, 2010
-
News: Banks Continue CC Deceit
If you own a credit card then chances are that you have used that card for a variety of reasons, including cash advances. However, you may not realize that interest rates vary on the same card account depending on the credit usage. For example, cash advances typically carry a higher interest rate than day to day credit card purchases. Furthermore, many credit card users may not realize that banks will apply card payments to the lowest bearing interest balance first. The implication is that banks will reap in more interest earnings while in some cases, the highest bearing interest balance may take years to be reduced.
Credit card reform that was passed last May and become effective in February 2010, mandates that lenders apply any payment above the minimum toward the highest interest bearing balance. Key word in that sentence: above. Statistics show during the recession, a large majority of individuals were making minimum payments thereby making it almost impossible for cardholders to pay down debt. Banks do not encourage cardholders to pay more than the minimum payment due and do a good job of concealing the terms of the legislation's provision. However, as knowledge and understanding of the provision increases in popularity, credit card companies will suffer still more losses.
In terms of the minimum payment due, lenders are not bound by law to apply any principal toward the highest interest bearing balance. Some banks lead credit cardholders to believe that they might apply the principle toward the higher interest balance, but in reality, most of the big banks including Capital One, Bank of America, and JPMorgan & Chase, apply it to the highest bearing interest balance. Call it a loophole if you like, consumer advocates call it a deliberate attempt to dig deep into the pockets of those Americans who a suffering the greatest because it certainly doesn't affect the affluent customer.