How I almost got screwed by the CARD Act

This post from Danielle Rodabaugh is part of the reader stories series. Danielle is the chief editor of the Surety Bond Insider, an online publication published by SuretyBonds.com, which tracks developments within the surety industry. A graduate of the University of Missouri School of Journalism, Danielle has a special interest in developing finance policies, entrepreneurship and online marketing.

That day started out as a typical day at the office. Actually, it was even better than usual. I'd been working on a number of projects for my surety bond insurance company that finally started to come together, and I found out that my boyfriend got a promotion at his company. Not to mention the fact that I was still riding the high from having purchased a new (used) car just two days before.

Then I got my monthly credit card statement email from Barclays. I was initially excited because I've been working to fully pay it off, and I love seeing the lowered balance every month. To my dismay, however, the balance listed in the email was $1,135, which was significantly higher than the $888 I had in my records. I proceeded to the activity report page to find a $247 interest charge.

“What the What?!” I thought to myself, Liz Lemon-style.

I realize that some people might not consider $247 to be a lot of money, but I'm a frugal 24-year-old working professional looking to save money whenever and wherever possible. After racking my brain and checking my other credit card balances, I determined it must have been some sort of mistake. I needed to get this issue resolved ASAP.

I called Barclays customer service where I spoke with a woman who attempted to explain the situation. I opened the card in August 2011 when purchasing a $1,290 iMac so I could pay it off over a 12-month period without paying any interest. After I received the card in the mail, I occasionally used it for other purchases (namely gas, gifts, a nice dinner when my parents were in town, etc.).

According to the customer service rep, I had failed to pay off my computer within 12 months, so I was being charged the full year's worth of interest. I immediately knew that was absolutely preposterous because I had made sure I paid off the balance well before the deadline. So, I told the woman I'd be calling back with a detailed report of my monthly payments.

After reviewing my financial statements, I verified that I had paid $1,995 on my card since August 2011, which is obviously significantly more than the $1,290 I had charged for the computer.

Fine print of the CARD Act

Fortunately, my second customer service representative was much more informed about the situation. She gave me the legal reason why the interest fee was charged. Under the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 (or Credit CARD Act of 2009), credit card companies must apply payments to whichever part of the balance has the highest interest rate. Since my computer was essentially “financed” at a 0 percent  rate for 12 months, any payment I made was first applied to the other charges that were subject to higher interest rates. The remainder was put toward the purchase of my computer. So, of my current $888 balance, $544 of it was still from my initial computer purchase.

I understood what she was saying, but I was vehemently opposed to what it meant for me: a $247 interest fee.

She offered to waive the fee if I paid the entire remaining balance of the computer purchase immediately. Fortunately I had just been paid a few days before, so I had plenty of money available in my checking account. But what if I didn't have $544 to immediately give Barclays?

Now, let me clarify that I understand the purpose of the law is to keep credit card companies from taking advantage of consumers. I also understand that, as a credit card holder, I'm solely responsible for understanding the terms of my credit card agreement. All too often I read consumer complaint-themed editorials only to judge individuals for their lack of personal accountability. However, I believe this situation is trickier than it needs to be.

There are only two ways I could have avoided this situation.

  1. I could have paid off the balance of the computer in full before using my card for any other purpose.
  2. I could have paid off my entire balance, including other purchases, before the August deadline.

Had I known how payments were applied to the account, I obviously would have chosen one of these options. I also think it's worth mentioning that Barclays issued the card to me with a $1,300 limit. In just one year the company increased my limit three times, and it's currently at $3,500. I can only assume this is a direct result of how frequently I use the card combined with the fact that I always pay my bill on time and in an amount greater than the minimum requirement.

In the end, I understand that I obviously was not as informed as I should have been. Barclays was fully within its legal right to charge me the $247 interest fee. However, I can't help but think this situation is a byproduct of a regulatory change intended to limit predatory credit card companies looking to take advantage of consumers, not give it loopholes. At the same time, I must also “credit” Barclays for explaining the situation clearly and finding a viable solution both parties were satisfied with. My only remaining concern is that other individuals in this situation might not have been able to front that payment and thus would have been stuck with the fee.

Do you consider this to be more of a legal loophole or a lack of understanding on my part? Either way, I hope others can learn from my experience. I'm interested in what others think about the situation, so let me know in the comments.

More about...Debt

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Holly
Holly

Lack of understanding. When using credit card offers you need to be sure you understand them.

Chip @ ChipsMoneyTips
Chip @ ChipsMoneyTips

Yes, and kudos to you for keeping your cool, making the phone call, and resolving it in your favor! Too many folks just roll over.

Danielle Rodabaugh
Danielle Rodabaugh

If the clarification helps, I did understand the terms of the card, which were primarily that I had to pay off the balance of the computer within one year to avoid paying interest. What I was not aware of were the terms of the CARD Act, which required that the company apply the >$1900 in payments I made to interest bearing purchases before they apply them to the initial purchase I had made. I submitted this article to GRS to bring this to the attention of others so they don’t experience a similar problem!

drew
drew

Keep in mind that before the CARD act the banks could apply your payments to whichever purchases that they wanted to. Given my own experiences with these kinds of offers from many years back, I feel pretty confident saying that the bank would have done exactly the same thing even without the CARD act. They would still have told you that they had applied your payments to the portions of your balance that you were paying interest on, they just wouldn’t have been able to say “We’re so sorry, but the government is making us do it.” Perhaps some banks… Read more »

Ellen Cannon

Prior to the CARD Act, card issuers generally applied your payment to the balance with the lowest interest rate, so you’d be paying longer on that high interest rate balance. The Federal Reserve has an excellent guide to the changes under the CARD Act here. http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules.htm

elena
elena

This is a nasty loophole designed specifically to entrap you and I appreciate you bringing it to this audience. That is a whopping fee to pay. Was there a separate line for the no interest versus the interest part of the account in your monthly statement? Just curious. And you had always had a balance on the interest bearing side?Do you have the orginal agreement and does it spell out for you the interest fee? I think blaming the CARD act is convenient way for the bank to avoid the obvious: that they are counting on people not to pay… Read more »

Tom
Tom

I had another “entrapment” experience. I got a no interest Home Depot card when buying a grill. The statements came in month after month and then stopped two months before the promotional period was to end. Of course, they started up again once the interest kicked in and a late payment fee was applied. Now I know to set up payment reminders in my financial software, of course.

Danielle Rodabaugh
Danielle Rodabaugh

To answer your question, when I received my statements, I simply went and made my payment, which ranged from $100 to $300 depending on my financial situation as I knew I’d have no trouble paying off the computer in a few months. I knew it wasn’t collecting any interest, so I didn’t pay much attention to how the structure of the statement was broken down. This would be a good thing to go back and look at. And I wouldn’t really call it a “fee” as it was actually just the interest that would have accumulated without the special offer.… Read more »

Mark
Mark

It’s nice that you are informing people about this specific situation, but what you should be telling people is that if someone is offering you something for free, there is always a reason. In the case of 0% interest for some time period, the trick is pretty much always that you get screwed if you don’t pay the entire balance by the end of the time period. Yours wasn’t that bad, for non-credit card based 0% financing they like to charge you the interest on the full balance over the entire time period. For example, you buy a $1,000 couch… Read more »

Xenocles
Xenocles

This is nothing more than the law of unintended consequences in action. Any time you make sweeping changes to a complex system you can expect the changes to result in negative impacts you might not have specifically expected.

Ross Williams
Ross Williams

I think this is the law of intended consequences at work. Barclays set this up to entrap people. They used the offer of deferred the interest on the computer to entice people to use their credit card. Since the card started with a large balance, they knew that people would not pay it off every month. That meant they could apply any payments to other charges and eventually collect the interest unless the entire bill was paid off before 12 months. This is not a consequence of the CARD act, intentional or otherwise. Its using the CARD act to justify… Read more »

Daniel
Daniel

Do you use the word “fraud” to simply mean situations that you don’t like? Because this is certainly not fraudulent. They loaned you money according to specific terms that you have a contractual obligation to repay.

Ross Williams
Ross Williams

I apply the term fraud to knowingly misleading someone for your own financial gain. That’s what Barclays did here.

John
John

No, they did not. Barclays is living by the law as set up by the government. They are doing nothing illegal or unethical. It may not sit well with you but if it were truly fraud, people could bring legal action against the company. The moral here is read before you sign. If you do not understand FULLY the legality of a situation and choose to go forward anyway, shame on you for your ignorance. Thus the saying “A fool and his money are soon parted”.

Liam
Liam

Hang on there John, it could be considered fraud. And may not have followed the letter of the law. The CARD act states you have to put the money towards the highest interest rate. A deferred balance is not 0% as advertised. It was accruing interest the entire time. There’s a definite gray area here.

Paris
Paris

Except the practice of applying payment to the highest interest charges has been in effect long 2009. I knew this in the 1990s when I too was a twenty-something using credit cards to pay for things I couldn’t afford.

Xenocles
Xenocles

According to the OP, the practice is now mandatory. Was it before?

Steve
Steve

The practice the CARD Act replaced was that the bank could apply payments to whatever portion of the balance they wanted. Usually that meant they applied it to the lowest interest rate. But in the author’s case, they certainly would have done exactly what they did, with or without the CARD act.

Danielle Rodabaugh
Danielle Rodabaugh

That is a short and sweet way to explain the exact problem here, so thanks for that! I totally agree with you. The purpose behind the CARD Act is great, and I’m sure it’s affected people positively more than it has negatively. However, there are always ways to take advantage of the system. I just hope others can learn from my mistakes here!

Elizabeth
Elizabeth

I’m of two minds about this one. On the one hand, I think any time a person uses credit the credit provider has a lot more control than they do. As consumers, we have to know the terms — or preferably avoid credit altogether. (I’m sure I’m not the only GRS wondering why the OP didn’t pay cash for the computer?) On the other hand, I know how easy it is to make a mistake. I tended to ignore my credit card terms because I pay off the balance immediately if possible One month, I accidentally was off by about… Read more »

Ann
Ann

Does the credit card provider not allow pre-authorized payment? I have eight (nine?) credit cards all with pre-authorized payment and I never worry about late or insufficient payments even when I’m traveling.

PawPrint
PawPrint

Can you contest any charges that you’ve automatically paid? My unease about automatic payments is that I will forget to check the statement and not notice an unauthorized charge. But if you can still contest the charge after you’ve paid the bill and get the charge reversed, that’s another story.

Ann
Ann

Yes, you can contest unauthorized charges and get them reversed when on pre-authorized payment.

Elizabeth
Elizabeth

Good question! I’ve never looked in to it. (Just did some googling — both cards I have use this feature.) I usually pay off my balance almost immediately — you can tell I don’t charge much — so I never really bothered to look into the feature.

The error was totally my responsibility — and a good learning experience!

Danielle Rodabaugh
Danielle Rodabaugh

I totally agree. In a perfect world, we would all fully understand every aspect of how credit card companies work and the rules that govern them. (Heck, in a REALLY perfect world, I’d never need to use a credit card.) However, we’re human, so we only have so much time and so many resources at our disposal. We’re all going to make financial mistakes, like it or not. Hopefully none of them are too horrendous. In the mean time, I hope others can learn from my experience!

Marsha
Marsha

On one hand, whenever you use a financial product–credit card, debit card, mortgage, car loan, etc–it’s your responsibility to understand how it works. After all, it’s your money, and the financial industry is trying to take more of it. So it’s an adversarial relationship. On the other hand, it’s not really a fair fight, because the financial industry has the knowledge and resources that most consumers don’t. So you have to be very, very careful when you use one of their products. One way to avoid the situation you were in is to have at least two cards: one that… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

That’s a great strategy I’ve actually recently started to use myself. It really does work, and it makes it much easier for you to manage finances.

Ross Williams
Ross Williams

“Do you consider this to be more of a legal loophole or a lack of understanding on my part?” I think it was intentional by Barclays. They made the zero interest offer with an understanding that some/many people would not pay it off in 12 months under the CARD act. You can call that a “loophole” if you want. If it was a small business I think it would be called consumer fraud. I also think you could file a complaint against Barclays based on the CARD act. You DID pay interest on the computer. Barclays was simply deferring it… Read more »

DonB
DonB

I think Ross makes an excellent point. It wasn’t zero percent because the interest was accruing the entire time.

Of course if it had really been a 0% balance, they applied the payments exactly as you would have wanted them too. And if you had paid the balance in full (including the extra charges you had made) then you’d have been delighted about the ability to have the use of the card and no interest.

In the latter case, you’d have been annoyed if your payments each month paid against the 0% balance and you still had monthly service charges….

Ross Williams
Ross Williams

Let’s be clear. Barclays established the terms of this offer to defraud people. It knew full well that at least some of its customers would not fully understand the implications of those terms. In fact, it was depending on it.

John
John

Yeah, they willfully committed fraud, an illegal act, and then at the last minute let the OP off with a very reasonable counter offer. That makes a ton of sense. If it were fraud, the government would be all over them with numerous charges. If they were the hucksters you claim, they would never have let the OP out of the deal. Come on people, just because a company uses the law to it’s advantage does not mean they are diabolical monsters. Don’t use credit if you’re to lazy or ignorant to know what you’re getting into. Period.

Anne Cross
Anne Cross

This doesn’t seem like something intended to protect consumers at all, but to let credit card companies profit by hitting people with fees they don’t expect.

Danielle Rodabaugh
Danielle Rodabaugh

I really do think the CARD Act has terms that genuinely do benefit the consumer. However, in this situation, I believe it does give companies the ability make certain offers that could end up costing the consumer rather than helping them. I just hope others can learn from my unfortunate situation.

Hannah
Hannah

I think this is a great reader story. I have never held a balance on any of my credit cards before, but I was considering opening one of these cards when I buy an iPad, because you can earn interest on your money all year and then pay it back right before 12 months is up. This loophole perfectly demonstrates why I hate the card act. It was meant to protect irresponsible consumers who overdraft their accounts or charge up debts they can’t afford. Banks still need to make a profit somehow, so now they are much more insidious with… Read more »

Ross Williams
Ross Williams

“It was meant to protect irresponsible consumers who overdraft their accounts or charge up debts they can’t afford.”

No it wasn’t. That is pure propaganda with no truth to it.

The CARD act has nothing to do with overdrafts or whether people could afford payments. It was intended to require credit card companies to apply payments people make to the person’s greatest benefit. It does nothing to protect them from overdrafts or non-payment.

Peach
Peach

Hear, hear! I always find it amazing that someone, somewhere, finds a way to blame positive consumer legislation for causing the lowdown dirty tricks the credit/banking industry comes up with to try to bilk the consumer. I have benefited much from the Card Act. We should ALL be informed about just what it changed. The 2 things I noticed on my Barclays card is that they no longer can charge interest for 2 months on 1 month’s balance. No more double-cycle billing. And they can’t automatically overdraft without my permission. Statements are a lot clearer, too. I think that act… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

Thanks for your great comment! I fully agree with you. From all the research I’ve done (mostly following this incident) I think the CARD Act was a great piece of consumer protection legislation. I think the problem I had here was an unintended consequence of how the rules technically work, however. Because I’m an intelligent person who had no previous knowledge of this, I wanted to share my problem and the lessons I learned with the GRS readership to help others avoid a similar situation.

sasha
sasha

I think you needed to understand your card holder agreement better. If you are going to carry a balance on your card, you need to understand each and every piece of how interest is being charged. Especially if you are going to have some of what is charged at 0% interest and some of what you charge at a higher interest rate. The problem is not that Barclays was charging you interest, the problem was you keeping a balance on that card. The CARD act says that credit card companies can no longer use payments to pay off 0% interest… Read more »

Ross Williams
Ross Williams

“The CARD act says that credit card companies can no longer use payments to pay off 0% interest charges while allowing higher interest charges to build up on the remaining balance.” The fact that they deferred billing the interest charges for 12 months doesn’t mean they didn’t charge interest. In the end, they did charge interest on the computer for the full period. If that interest rate was higher than the other charges on the bill, it would be clear Barclay’s had violated the CARD act. Whether what they did was legal or not, it was clearly not simply a… Read more »

Xenocles
Xenocles

The lesson is that there is no system that cannot be gamed, and that the more complex the system the easier it is to hide your gaming.

In other words, as we say in the submarine force, no new lessons were learned.

sasha
sasha

Ross I think the OP would admit freely that she understood interest would be charged if she didn’t pay off the computer by the end of the promotional period. She isn’t disputing that. What she did not seem to understand is that when she choose to charge more than just the computer on that card – only the computer was at the promotional rate and her new charges (with interest accumulating immediately) would be paid before the 0% debt was paid. ALL of her other charges were being charged interest from the moment she charged them (since she was in… Read more »

Ross Williams
Ross Williams

“ALL of her other charges were being charged interest from the moment she charged them”

So was the interest on her computer. It just didn’t show up on her statements.

Perhaps she should have known better. But Bernie Maddoff’s victims should have known better too. Its true of almost every fraud victim in retrospect.

John
John

Madoff is a criminal and in jail for his criminal acts. Barclays is still in business with no charges pending to my knowledge. See a slight difference? The OP foolishly chose to go into a deal without fully understanding the consequences or parameters. Her fault and hers alone.

Danielle Rodabaugh
Danielle Rodabaugh

I fully agree that I could have better understood the terms of the card as well as the CARD Act. The fact of the matter is, however, that I didn’t. And of course, carrying any balance on any credit card is “bad.” However, I did. I submitted this story hoping to draw attention to this issue because I assume if it’s a problem I – as a typical consumer and card holder – had, it’s a problem others could face as well. I got the issue resolved and learned from my mistakes. By sharing my problem with the GRS crowd,… Read more »

Jason
Jason

By applying the payments to the interest bearing portion of your statement first, the CARD Act saved you much of the $250 charge you received at the end of 12 months by lowering the amount owed that was currently accuring interest. It’s not a loophole intended to hurt the consumers – the law is just specifically designed to take benefits as soon as they are available. Most of the time, this is beneficial to the consumer. It’s impossible for the law to know if you will pay off the balance in full at the end of 12 months, so its… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

Those are all great points. I got the card because I graduated from college in May 2011, and I needed my own computer ASAP so I could do freelance photography and design work outside of my “regular” full-time job for an online insurance company. I knew based on my new income I’d have no problem paying off the computer since I was offered 0% interest for 12 months. Ideally I wouldn’t have needed the card in the first place, or I wouldn’t have used it for other purchases. But I did, and I learned a lesson. This is less about… Read more »

Steve
Steve

As others have noted: You should never charge things onto a card with a promotional balance/rate.

Prior to the CARD Act, this was an ironfast rule. If you charged anything on such a card, the bank would charge you standard (high) interest on it for the entire time, while applying your payments to the promotional balance. It was this very abuse that the CARD act ended!

Jason
Jason

“Perhaps a line that lists amount owed by current interest rate would be sufficient?”

The author’s previous credit card statements likely included an “Interest Charge Calculation” section. My statements typically have this all the way at the bottom, after the list of charges & credits. There should be a line item for each interest rate, including the 0.0% introductory rate.

Meaghan
Meaghan

From one frugal 20-something professional to another, not carrying a balance on your credit card is a great way to save money!

Leah
Leah

That’s my method. I pay off my card in full each month, and interest rates never matter to me.

Emily @ evolvingPF
Emily @ evolvingPF

I agree. To me Ellen seemed rather cavalier about having a balance on her card when it seems she had the ability to pay it off in full. Best not to put yourself at the mercy of the credit card companies!

Danielle Rodabaugh
Danielle Rodabaugh

I agree with that wholeheartedly 🙂

Stacie
Stacie

I think the problem is that the CARD act tried to close some popular loopholes, which only incited the credit card companies to create new ones. But I think you’re at fault for this one. I know in my credit card statements it states pretty clearly that payments are credited towards highest interest rates. In fact, I just checked and it ALSO states “Because we apply payments in excess of the minimum payment first to higher rate balances, you may not be able to avoid interest charges on new purchases if you have another balance at a higher interest rate… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

I just want to clarify that I’m not “blaming” Barclay for this situation. I realize that this problem occurred 1) because of how I used my card and 2) because of how the CARD Act changed how payments must be applied. I was very grateful that Barclay agreed to take off the fee if I paid the remaining computer balance off in full. I just wanted to draw attention to the fact that this problem can arise, and that consumers should be aware of it. Thanks for sharing your perspective!

El Nerdo
El Nerdo

Interesting story but I don’t like the title of the piece because it blames the only non-guilty party for the problem.

Joanna Lahey
Joanna Lahey

Confidential to El Nerdo: There was a post yesterday (on Saturday!) and I’d love to get your feedback on it. 🙂

Sincerely,

Another El Nerdo Fan

El Nerdo
El Nerdo

Hi Joanna– I saw! I’ve read it already a couple of times. Had a day mostly AFK though, so I haven’t had a chance to comment, but I will– too late, unfortunately, to engage in actual discussion, but better late than never, right?

Joanna Lahey
Joanna Lahey

It is never too late to engage in actual discussion. 🙂 (At least not while the post is still on the front page.)

Nicoleandmaggie
Nicoleandmaggie

Couldn’t Barclays have done the exact same thing before the CARD act if it wanted to? In fact, I vaguely recall that being in the fine print many years ago the one time we had to float a 0% CC loan. (Though I could be misremembering.)

Ross Williams
Ross Williams

Yes. The CARD act is just a convenient excuse that makes it sound like they had no choice.

Steve
Steve

That is the only way the CARD Act comes into play in this story. The bank attempted to use it as an excuse to dissuade a consumer from fighting the charge. They could have attempted to blame any number of other factors, such as “market rate,” “my supervisor,” etc. As Nicoleandmaggie said, they would have done exactly the same thing pre-CARD.

Peach
Peach

Agreed. And they would’ve used a convenient reason to reluctantly, finally, waive the charge, while blaming you for not knowing what was in the fine print of the agreement. One thing they would never do is to apologize for burying it in legaleze where they hoped you’d never find it.

Kate
Kate

Kudos to you for calling up and negotiating a solution! Overall, though – lack of understanding on your part. For me the take-home message is: I can avoid all of these intricacies by paying off in full each month.

Marcy
Marcy

I opened up a Sears card to get 12 months no interest (if fully paid off in the 12 months) on a purchase of a lawn tractor. The salesman warned me at the time to pay off the purchase before charging anything else on the card. I made sure that I did, I paid off the tractor well before the time elapsed.

Danielle Rodabaugh
Danielle Rodabaugh

It’s awesome that he specifically told you that ahead of time! That’s what I think should happen in these situations, but I know that’s probably asking a lot. Hopefully by addressing the problem here, others will learn from my mistakes.

Steven
Steven

This system was set up for the greater good, there is always going to be one off situations. Banks are there to make money, not make sure that a 0% bill was intended to have paid off faster than the higher rate purchases. This is where like you did, the customer service reps have to use there best judgement. This is a great example of why credit cards are evil;)

Peach
Peach

The title was a little misleading. I don’t think it was the Card Act that caused the problem. I don’t blame you, either. It’s just an important lesson that credit card companies will deal with regulations and restrictions in a way that ultimately benefits them, no matter what. I would take it a step further and say they probably offered the 0% rate initially and added increases regularly not just because you were a good credit risk, but also because it would tempt you to “muddy the waters” by adding additional debt and never reaching a zero balance. Important lesson… Read more »

Ann
Ann

I don’t know how you can blame Barclays in this scenario.

(1) They followed the rules in the CARD Act, which actually benefited the writer because otherwise, she would’ve accumulated interest on her subsequent purchases.

(2) They offered her an option to waive the interest she legitimately incurred.

The blame, if you want to go there, lies entirely with the writer for her lack of understanding.

Ross Williams
Ross Williams

“They followed the rules in the CARD Act, which actually benefited the writer because otherwise, she would’ve accumulated interest on her subsequent purchases.”

Instead she accumulated interest on her computer purchase. How did that actually benefit her?

sasha
sasha

But that wasn’t because of Barclays choices, that was the OP choices. No one made her continue to charge on the card. She knew the only charges to have no interest were the computer charges. It seems like you are saying Barclays shouldn’t have charged any interest. On any of the OPs charges. But that isn’t how credit cards work. And the OP should have understood how her payments would be applied if she wanted to use the card for both a promo charge as well as revolving everyday charges. This story could just as easily have been written from… Read more »

DonB
DonB

It definitely had the potential to benefit her if she had paid her card off in the 12th month (i.e. finished paying her computer and cleared her balance of other charges as well). Because she avoided the month-to-month interest on her other purchases. They can’t really at the end of 12 months go back and retroactively decide what part of the balance to apply a payment to. In month 1 they have to decide to pay against the computer and charge interest on the other purchases, or pay against the other purchases and apply the remainder to the computer. The… Read more »

Ann
Ann

She only accumulated interest on the computer purchase after the 12-month period, which was eventually waived.

Her lack of understanding benefited her.

Ann
Ann

Ross Williams:

I just looked over all your replies. You obviously hate the banks and they can do nothing right in your eyes. I’ll refrain from replying to you in future because I can’t debate with an unreasonable person.

LeRainDrop
LeRainDrop

Ross, you have replied to what seems like a majority of the comments here. Unfortunately you seem to miss that in the end Danielle did not pay a penny of interest on her computer. Yes, they put $247 as a line item for that interest, but when she spoke with the second rep, they agreed to waive it in its entirety if she would pay off the balance in full, which she did. Basically, she ended up paying no interest on her computer and either no or less interest on her other charges than she would have incurred if Barclays… Read more »

Ross Williams
Ross Williams

“that wasn’t because of Barclays choices, ”

Of course it was. Who do you think set up the terms of this agreement? They understood full well that some people were going to be caught in the trap they set.

Ross Williams
Ross Williams

Ann –

I may hate banks or anyone else that deliberately engages in fraud, while blaming their victims for their failure to detect it until it is too late. I don’t think every bank or credit card company does that.

LeRainDrop –

Yes, Barclays made her whole after two phone calls. Clearly they trained their customer service staff on how to handle these situations. I am sure they make a lot of money on people who only call once or not at all.

Peach
Peach

I don’t understand your need to blame the OP and excuse the card company, but let’s go with that. She was charged much more interest on her oldest purchase, in the end, even though she believed she had paid that debt off. After she began charging other purchases, the credit card company started applying payments to her new purchases, and letting the interest build up on the older one. The OP is not complaining about paying interest on her newer purchases. She understands she owes that. The interest Barclays tried to charge is far, far, FAR more money than the… Read more »

sasha
sasha

Peach I am not blaming the OP for charging stuff -that was her choice. But if they had applied the money the way she thought they were – her balance wouldn’t have been $888 at the time when she got socked with the $237 interest charge on the computer. Because the bank was paying off her newer purchases – she wasn’t being charged the 18% on those that she would have been if they had applied the money to her 0% charges. She charged over $1500 in addition to her $1300 computer. If all her monthly payments went towards the… Read more »

sasha
sasha

Peach

Based upon the interest she was being charged for not paying the computer off, it does in fact look like Danielle’s interest rate on the card is 18% – which is a pretty typical interest amount. I don’t know if Danielle wants to confirm that or not, but it is just simple math to figure it out based on the numbers she gave us.

Danielle Rodabaugh
Danielle Rodabaugh

Off the top of my head, I think the interest rate is 18%. Thanks for figuring that math out as that’s a good point. I keep trying to point out that I’m not trying to play the blame game here. I’m not blaming Barclay nor the CARD Act solely as I think it does way more good than harm. This is why I ended the article asking what other GRS readers think about the situation. I wrote this article in the hopes that others might learn from my lack of understanding about the CARD Act and how it applies payments,… Read more »

Bryan
Bryan

I always assume special introductory rates are designed to lure me into some sort of trap just like this. Trust no one and keep the balance at zero always.

Danielle Rodabaugh
Danielle Rodabaugh

I fully agree. Should I have known better? Absolutely. Does that make it any less of a problem that could adversely affect the finances of many, many consumers? No. By sharing my lack of understanding, I hope others can avoid a similar problem.

Alexandria
Alexandria

For the most part, I avoid credit cards (carrying balances, anyway) because there is really no way to win. So one some level this post is a yawn. Surprise surprise, the credit card companies found another way to charge exorbinant amounts of interest! What else is new?

Gerald
Gerald

This isn’t a result of the 2009 card law, or any other. It’s the card company applying payments in a way that benefits them, pure and simple. It’s just like the old Bank of America policy of changing the order of transaction processing from chronological to size-descending, so they could increase the overdraft fees they collected from unsuspecting (usually lower-income) debit card users. They’ve since changed that practice, thanks to a lawsuit and $600 million settlement…

Shanna
Shanna

This situation was absolutely due to your lack of understanding. But many people who have not experienced this would suffer the same problem, so this is a great story to educate the readers!

Danielle Rodabaugh
Danielle Rodabaugh

Thanks for your input! That’s what I was hoping for. Sharing your mistakes with a ton of people online requires you to swallow your pride a bit, ha! However, I hope others can learn from my experience here and avoid a similar problem in the future!

Anna
Anna

I agree this situation was totally due to the lack of understanding of the author. Anytime you take advantage of a “deal” offered by a credit card company, make sure you read ALL the fine print to confirm what your payments are credited to first. Unless the card had a zero balance before you used it to take advantage of the deal and you don’t charge anything else to the card, you’re going to pay interest. Lesson learned (but I only had to learn it once years ago!)

Danielle Rodabaugh
Danielle Rodabaugh

Agreed…after this experience, I’ll definitely be much more careful in the future. I just hope by sharing my experience others can avoid a similar situation.

PawPrint
PawPrint

I have taken advantage of the 0% interest rate on Lowe’s purchases when they were large purchases, and, although I had the $, I’d rather keep it in my interest-bearing checking account and dole it out monthly. I also continued to use the Lowe’s card to make smaller purchases (they offer 5% off if you use the card) that I paid off each month. In the online account information, Lowe’s had a box you could check to apportion the payments so I said pay off the other charges and put the rest toward the 0%. While it’s probably easier to… Read more »

CERB
CERB

On a similar note (borrower beware)… according to Dave Ramsey, 88% of interest free loans, or 90-days-same-as-cash type contracts, do not get paid in full before the deadline. At that point those contracts convert to payments that are usually at a 24% annual percentage rate. Most people who think they’re going to get an interest-free loan, end up paying dearly for it.

Gary LaPointe
Gary LaPointe

It’s great that you could get it fixed and had the money to pay it. Ties right into my mantra of “it never hurts to ask”.

Since all you had to do was ask (although you kind of had to ask them twice), it makes me wonder how many people would pay the fee and never ask (or never ask the second time for an explanation).

Danielle Rodabaugh
Danielle Rodabaugh

Yes, I think this is one of the most important takeaway points, too. Although the first customer rep I spoke two wasn’t very helpful (and by “not helpful” I mean “equally unaware of the implications related to the CARD Act”), the second one definitely helped me understand the exact situation and what I might do to resolve it. Furthermore, the card was issued with a $1300 limit, and now my limit is $3500 (and I never asked for an increase). So it’s safe to say they’ve appreciated how I’ve managed my account over time.

bill
bill

While I understand what happened here, it could have been easily avoided by not spending money you didn’t have. Don’t buy a new computer if you don’t have the cash to pay it off…no?

Danielle Rodabaugh
Danielle Rodabaugh

Yes, I understand the concept that credit cards are *always* bad and carrying a balance is *always* irresponsible. But when you’re dealing with real financial decisions in real life sometimes people need to take advantage of credit. Here’s the basis for my decision: I graduated from college in May 2011 and started a full time job. Since I no longer had access to the free computer labs and software on a campus, I needed the computer to continue doing freelance design and photography work from home. Based on my earnings at my “regular” job, I knew I could pay off… Read more »

ken lavoie
ken lavoie

Based on my observation, I’d say this is typical symptom of too much regulation again.

My opinion is that, sure, had the OP understood the rules, they wouldn’t have gotten “almost screwed.” However, the “rules” in this case are so counter intuitive, it’s likely they’ll “nab” quite a few. I’m sure they know this! The Government issues regulations, they’ve got to counterbalance them with a few loopholes to get back to even… maybe I’m a bit cynical!

Ross Williams
Ross Williams

“I’d say this is typical symptom of too much regulation again” No matter how often this is repeated, it still isn’t true. “Regulation” had nothing to do with this. It was a choice Barclays made. As the Lowe’s example posted in an earlier comment makes clear, they could have chosen otherwise. In fact, its not clear that Barclays is even in compliance with CARD. As I said above, I think you could make the argument that, once they charged interest on the computer, they had a responsibility to reallocate previous payments. Deferring interest payments shouldn’t allow them to circumvent CARD.… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

This was my thought. Yes, I could have better understood everything if I had done better research. Perhaps this is “buyer beware” and I should have known better, but I didn’t. By sharing my story, I hope others can avoid a similar problem in the future!

Luke
Luke

I figured out a sure-fire way to avoid these “loop holes”, “fraud”, “malfeasance” or whatever else you want to call it: pay cash. This tried-and-true method has been working flawlessly for me for years. I also found a ground-breaking new way to cut my gasoline expenditures in half: I drive half as much. Try it. It might work for you, too.

Jason
Jason

This is not the CARD act screwing you, or big business screwing you either. By paying the current interest bearing portion of your balances first, you didn’t get charged interest. By crediting that balance first, you probably saved nearly the $250 interest charged at the end of the 12 month period in fees that would have been due immediately and compounding. I think the fact that Barclay’s allowed you to pay off the balance late and remove the interest shows that they are a relatively good company. A poster above said 88% of these 0% interest for x-months deals don’t… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

I fully agree with your takeaway. That’s exactly what I hope others takeaway from reading about this, too!

Paige
Paige

I say Both.

While it’s our responsibility to protect ourselves and understand the nasty fine print, I also think that just because it’s a law doesn’t mean it’s a just law. People abuse laws and so do companies, and I think in your situation the word “predatory” definitely applies.

A person with scruples would call you up and say, “hey, just want to be sure you know…”

A company? Not happening.

JoDi
JoDi

Lack of understanding on your part. They followed the law. You didn’t bother to find out how your payments would be applied and so YOU didn’t fulfill the terms of the agreement. There’s no loophole here that they took advantage of. They didn’t change the rules on you. You simply made an agreement without understanding what it was, and when you didn’t fulfill it, they let you off the hook. You’re pretty darn lucky if you ask me. Lesson learned and passed on to others: Read the terms of credit card offers including those for balance transfers, 0% purchase offers,… Read more »

chris
chris

Many of these no interest for 12 months deals are designed to catch you somehow. Barclays most likely intentionally used the law in a way to catch you. If the law wasn’t there they would have had some other quirk inthe agreement. I avoid these deals for this reason.

John
John

To some degree you are correct. 12 month same as cash offers are made by companies that realize most people do not have the self control, understanding or discipline to follow through on the deal and then they get a big bonus at the end of the term. The credit industry is in business to make money, not make zero interest loans. People (like me) that pay off their credit balances completely every month are the ones gaming the system. I get all the perks of using a credit card (cash back bonuses, frequent flier miles, special offers)and none of… Read more »

Alison Wiley
Alison Wiley

I’ve got several thoughts. 1.) Most people, including educated ones, would have interpreted the situation as you did. 2.) I’d love to see your piece be required or recommended reading for everyone receiving any credit card. It makes perfect, practical sense and gives actionable information — which is not true of the pages of fine print that corporations generate. 3.) I’m more convinced than ever that I do not want any new credit cards, especially if they offer me zero interest for the first year. I want more joy with less stuff (which is the sub-title of my blog). Great… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

Thank you so much for your response. I feel like I’m a pretty good example of the typical consumer who wants to save money and take advantage of deals. I’m definitely not a financial mogul as are many of the readers here. Most of the time I live frugally, but I do use credit cards from time to time. When I do use them, I fully intended to “follow the rules.” I’ve never been late for a payment, and I almost always pay more than the minimum due. My proof of this is that my card limits have been increased… Read more »

El Nerdo
El Nerdo

Fortunately I had just been paid a few days before, so I had plenty of money available in my checking account. But what if I didn’t have $544 to immediately give Barclays? That’s why all “frugal” people should have an emergency fund, if not larger savings down the line, and avoid borrowing. It would have been best to save up for the computer rather than borrowing to buy it. The potential profits of gaming the zero interest purchases are much smaller than the potential loses of doing it wrong. The only option where I think credit can be justified besides… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

I also have a savings account with a sizeable cushion. (It’s hard to determine how much information to include in an article like this.) My point was that others in this situation might not have had the funds available to make the payment right away. I’ve since decided to pay off my credit card balances by accessing some of my savings.

El Nerdo
El Nerdo

aaaaaaah! from the article i understood that you relied purely on your checking. emergency funds FTW! because stuff happens– all the time.

Laurie
Laurie

I have benefited from this clause in the CARD act and have successfully gotten interest charges and late fees removed as a result, so I’ll have to say it was the OP’s fault in not understanding the way credit cards and deferred balances work. Also, assuming that the CARD act had never happened, the OP would have still been charged interest on the remaining unpaid balance of $544. I think the bigger lesson here is charging more to your credit card than you could handle with your existing cash flows. I never charge my credit card for more than the… Read more »

steve
steve

Had I known how payments were applied to the account, I obviously would have chosen one of these options. -That is why it pays to be wise enough to scan a few things and ask a lot of things.

ShackleMeNot
ShackleMeNot

Credit Cards are awesome! I should get one.

Kelly@Financial-Lessons

Interesting story, and definitely true about the accountability thing. Too many people try to pawn off their bad money choices to other areas like the credit card company, etc. Just another reason why you should be knowledgeable about all areas of your credit card agreement and statements, as well as Federal laws.

Sam
Sam

We don’t use credit cards in our day to day lives, but we often use the Home Depot credit card for our real estate business. We take advantage of the 0% offers when appropriate and then pay it off well in advance of the due date. In order to avoid interest, I have to make sure that I pay for any non 0% charges on a monthly basis and I have to make sure to pay the minimum charge well in advance. Even with all that checking and monitoring, HD for some unknown reason has repeatedly charged us a $2… Read more »

attgig
attgig

I’ve fallen for that too (in ~2003) for a 0% balance transfer, but stupidly used the card for other things, and was not given such a nice option from the card rep. I paid everything right then and there..including the interest…

Rob
Rob

there’s also a third option to avoid this: don’t use credit and pay cash. Which also happens to be my favorite option 🙂

Ross Williams
Ross Williams

“I was not aware of were the terms of the CARD Act, which required that the company apply the $1900 in payments I made to interest bearing purchases before they apply them to the initial purchase I had made. ” That was not required by the CARD Act as the Lowe’s example above makes clear. It was a choice made by the credit card company to its own benefit. If someone deliberately short changes you, you can blame yourself for not counting your change. Or you can blame them for trying to take advantage of you. “I always assume special… Read more »

Ross Williams
Ross Williams

Some people pay off the full balance on their credit card. Most people do not. Which means most people who take this “deal” and use the credit card in the typical fashion will end up not getting the “deal’. Barclays promised zero interest if you paid off the computer within a year. But, that highly misleading. You not only had to pay off the computer, you had to pay off the balance on any other charges as well. I suspect had they made it clear you had to bring your credit card balance to zero within a year, there would… Read more »

Grayson @ Debt RoundUp
Grayson @ Debt RoundUp

I have been there and done that with interest payments. While I understand where the OP is coming from, I also understand where Barclays is coming from. It is more beneficial to have your money going toward something being charged interest in order to pay the card off quicker. Yes, you should have paid closer attention to how your payments were being applied, but banks can do a better job with indicating this in large or bold on the statement instead of in their usual small letters. This is just another lesson learned that I am sure the OP won’t… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

This is exactly how I feel now that the situation has been resolved!

Ross Williams
Ross Williams

I don’t pay any interest on my credit card if I pay off the balance each month. But if I carry a balance I pay interest from the moment a charge is posted. If those are Barclay’s terms, then they would have charged at least one month’s worth of interest on any new charges even if they were paid in full. In other words, that 0% interest computer loan would still have cost the card holder money.

Watch out for predators.

lmoot
lmoot

I blame the writer. I feel bad for her, but I still blame her. From what I understand she used the card to charge a promotional item, but also used the same card to charge monthly purchases that she did not intend to pay off at the end of the month, so therefore she was expecting to pay interest anyway. You stated the exact amount you paid back, but you left out the amount you charged, which is equally important. You also have an option #3: Pay off all extra purchases of the month before the next cycle is due.… Read more »

jim
jim

I don’t blame the CARD act here for “screwing” you. Sorry I just can’t agree with that conclusion. Hopefully the bank wasn’t trying to blame the government for this either as I’m sure the bank knew exactly what they were doing and new exactly how the law works and intentionally set up their card to lead their customers into such a situation. Cause thats what banks did before CARD and will do after CARD. Banks are absolute trying to get customers to pile up more charges and more interest. The 0% deal alone is a good example. They aren’t offering… Read more »

K
K

I’m just sort of still confused by a “frugal 24-year-old” who has a Barclays credit card. Maybe that’s a common bank where you are but I think of it as a high-end elite bank.

Also, a “frugal” anyone who buys a $1200 laptop. You can get a good and capable laptop for less than $500, and that was also true a year ago. $1200 is not terribly frugal, IMO.

Leah
Leah

RE: the computer and being frugal, part of being frugal is not going for the cheapest option but balancing cost and quality. In my experience of buying laptops, I’ve bought 4 over a wide range of prices. My two PCs, which were lower cost, lasted two years each. My two macs have lasted many more. My mom is still using my 6.5 year old macbook, and I have a 1.5 year old one that is just fine, and I anticipate having it many more years. I’d rather pay $1200 for something I’ll use for a longer period of time. But,… Read more »

Ramblin' Ma'am
Ramblin' Ma'am

“I’m just sort of still confused by a “frugal 24-year-old” who has a Barclays credit card. Maybe that’s a common bank where you are but I think of it as a high-end elite bank.” I’m 29 and make a pretty modest income. I have a Barnes and Noble credit card through Barclays. It’s a free card that gives me a 5% credit on all B&N store purchases. I figured there was nothing to lose as long as I only used it for the store and paid it off in full each month. I didn’t realize Barclays was known for targeting… Read more »

Danielle Rodabaugh
Danielle Rodabaugh

An iMac is not a laptop; it’s large-screen desktop computer that I purchased to use for freelance design and photography work, so it was a necessary investment once I graduated from college and no longer had access to campus computers for free. Why people are questioning the reasoning behind my computer purchase is beyond me. I got the Barclay card when I purchased the computer because they partner with Apple for large client purchases, and I was trying to build my credit responsibly.

lmoot
lmoot

I don’t think you’re irresponsible per se, but there seems to be a lot of justification around here. I didn’t want to question your computer purchase (b/c I think people should be able to buy what they can afford to buy), however I felt I had to bring it up in one of my comments because you also mentioned that you also charged basic, mundane things (and charged it with the intent of accumulating interest on it). This is what alarmed me. It’s one thing to use a 0% interest card to obtain a free float, and yet another to… Read more »

pamela
pamela

I think this is whining. No one has to take out a credit card. Do you think the bank is lending you money (in reality what a credit card is) out of the goodness of their heart? Don’t charge=no fee’s. Simple no?

Danielle Rodabaugh
Danielle Rodabaugh

In a perfect world, nobody would every need to use a credit card. But people do need to use them, and when they do, problems can arise, whether they’re the fault of the cardholder or otherwise. I was simply trying to share my experience so that others might learn from it.

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