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Charging interest before you owe it

Posted by: under Loopholes Updated: January 25, 2010 - 12:40 PM

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After charging $58.37 on a store credit card that had sat dormant for years, a Minneapolis man noticed an unusual interest charge. Even though he hadn’t carried over a balance, he was told to pay $2 in interest. His new balance even stated that he owed $60.37. Here’s what he wrote to Whistleblower:

 “Unbelievable – they are charging me an ‘Initial Interest Charge’ that shows up in my ‘New Balance’ in order to get $2.00 from me that they will apply to ‘future’ interest. I can’t believe they have the gall to do this.”
“What they were doing was anticipating that I wasn’t going to pay the full bill so therefore they were adding two dollars to the bill and putting it in the balance due section,” he said. “It was showing up without me owing it.”
He called the company to complain and was told that if he paid his balance in full then the $2 charge would be credited to his account, but he still thinks the practice is unfair to consumers.
“Now obviously I could pay the $58.37 and the $2.00 would be credited, and I never would pay it. But most people don't look this closely at their bills. I was just about to enter the $60.37 into my bill pay service when I noticed the Interest Charges of $2.00. I'll bet most people just pay the New Balance and don't notice the interest charges.”

 SmartMoney magazine reported on this practice in December and compared it to double-cycle billing, which calculated interest based on the past two billing cycles. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 prohibits credit card companies from charging interest on a balance from a current or prior billing cycle, but that regulation only applies to cards that have a grace period. 

Have you noticed this on your credit card statement? What do you think of this practice? 

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