Credit card small print on interest rate costs


Call for card providers to use the same charging methods

CHOICE has called for all credit card providers to employ fair methods in charging interest after finding many use harsh practices to boost their bottom line.

Different ways of calculating interest mean the bill for customers who pay some, but not all of their balance, in one scenario could vary between $10 and $45.

The consumer advocate surveyed 20 credit card companies to see the detailed ways they charge interest to those who might pay their balance late or not in full.

The results showed the amount charged depended as much on when the companies stop and start charging interest and how fairly they apply interest-free days as the actual interest rate.

“Many consumers would be surprised to learn they could have two cards with exactly the same interest rate and use them in the same way yet have one charging twice as much interest than the other if they pay late,” said CHOICE spokesman Christopher Zinn. “The tricks of the trade make it much harder to compare the relative merits of different credit cards because the headline interest rate is only part of the story.”

The results showed the Bendigo Bank, Heritage Building Society, Teachers Credit Union and some GE cards treated their customers more fairly. Companies using unfair interest calculation methods include American Express, Bankwest, Commonwealth Bank, ANZ, Westpac and other GE cards. The Bank of Queensland and HSBC have recently moved from fair to punitive calculations.

The majority of institutions backdate interest to the original transaction date if you are late paying a credit card bill. Being even one day late could see you charged retrospective daily interest on all transactions for up to 55 days.

Also in the small print is the cards’ failure to give any credit for partial repayments. If you make a partial repayment on time most companies still backdate interest on the full amount of your original purchases.

For example, with unfair cards, underpaying a $2000 bill by just $10 would see you charged interest on the whole $2000. The fairer companies CHOICE surveyed would only charge interest on the missing $10.

If you fail to pay your bill in full and on time, most companies will also cancel your interest-free period for any new purchases until you clear the balance in full.

“It’s a simple matter to tweak systems to employ fairer systems but while most customers don’t understand the tricks they will inevitably continue,” said Zinn. “The Big banks buckled to customer dissatisfaction about penalty fees. Now their challenge is to do away with these unfair interest charges.”

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