NEW YORK — Credit-card issuers are still playing “gotcha” with customers.
Landmark reforms this year were intended to stop billing practices that gouge unwitting consumers. Yet banks are hanging on to a tactic that ensures that borrowers rack up as much as possible in interest charges.
The practice in question comes into play whenever portions of a cardholder’s balance carry different interest rates. Cash advances, for example, can come with drastically higher interest rates than purchases. At Bank of America, it’s about 24 percent versus as low as 13 percent.
From the consumer’s perspective, it makes more sense to pay down the higher-interest-rate balance first because it rises at a faster pace.
Before the reforms went into effect, however, banks would apply any payments first to balances with the lowest rate. This ensured that the costlier balance kept fattening up for as long as possible.
The tactic was among those targeted by regulators. The new credit-card law, which took effect in February, specifies that any payments above the minimum must first be applied to the balance with the higher interest rate.
“Above the minimum” means minimum payments can still be applied to the lower-rate balances.
That’s exactly what the biggest credit-card issuers are doing, including American Express, Capital One and Chase.
