Did you know that if you don’t pay the full closing balance on your monthly credit card or store card statement to the last cent, or if you pay just one day late, you’ll be charged interest on the full outstanding amount?
This is revealed in the small-print terms and conditions of credit agreements, and in some cases on the statements as well, but most people discover it the hard way – when they get their statements after “transgressing” with their payments.
To those who pay by credit card primarily for convenience and who pride themselves on settling their balance in full every month, thus avoiding interest charges, the sudden application of interest after a late or short payment – usually a mistake – is cause for outrage.
Gus E is the latest aggrieved consumer to write to me in this regard.
“I pay my wife’s accounts,” he began. “The balance on her credit card in May was R15 742.77, but I mistakenly paid R15 472.77, giving rise to a shortfall of R360.
Gus’s finger trouble cost him more in interest than the shortfall amount.
“I was charged R443 interest for the full month. I think this is excessive and possibly illegal,” he said.
“Can you help me on this, because this will apply to many other people who cannot afford such excesses.”
Incidentally, extra interest, plus late payment fees, also apply to those who short-pay or late pay the minimum amount due on their monthly statements, even by a few cents or a few hours.
I get a lot of outraged e-mails about that as well. “Surely this can’t be legal?” they ask. And more recently: “Isn’t this a contravention of the Consumer Protection Act?”
Well, apparently it is legal, and no, the CPA is of no help at all in such matters – that would be the National Credit Act, but it doesn’t outlaw the practice either.
Rather than asking each of the banks to offer their justifications, I sought the opinion of John Simpson, general manager of the office of the Ombudsman for Banking Services.
And here’s the short version: the banks won’t charge you any interest on your credit card purchases for up to 55 days, but if you pay just one cent short or one day late then they whack you with the full amount of interest due – not just the interest on the underpayment.
“While it may appear that you are being charged a huge amount of interest at a massive rate, you are actually being charged the normal interest rate applicable to the account – on the amount of the purchase you made,” Simpson said.
“Essentially the bank is giving you a chance to not pay any interest at all – if you pay the debt in full before the period expires – but if you are just one cent short then the normal interest that would normally have been charged is levied.”
Of course, this is included in the terms and conditions on credit card agreements.
“We are not aware of any legislation that prohibits the banks from applying this process,” Simpson said.
“The banks have argued that if they are not permitted to do so they will simply start charging interest immediately on any transaction – there would be no interest-free period.
“Until the tribunal or similar court reaches a different conclusion, we have not made any recommendation against the levying of interest in this manner.”
Penalty fees of a few hundred rand are also levied if credit card account holders go over their limits, and this often happens to those who “run up” their accounts close to the limit, and are “pushed over” when their bank levies the annual card fee.
So make sure that you know which month that fee is levied if you’re near your limit on your card.
And if you late pay, short pay or go over your limit for the first time, approach your bank with a request to waive the penalty fee or additional interest.
If you’ve built up a record of good account management, there’s a good chance they’ll do so as a goodwill gesture. Once.