Balance Transfers and interest free periods

[exceladdict]

Hi All

I'm not sure a response I got from bankwest was correct, so I wanted to double check with anyone who is experienced in the area as to whether my understanding is accurate.

I have a balance transfer on a 0% offer, so plan to not pay it off for the next 9 months when it converts to the cash rate. Of course, this means I get no interest free days (usually 55). However, I want to take advantage my qantas world mastercard's low threshold for free insurance ($500pp) for an upcoming trip.

I asked the bank, if I charged it to my account today (for instance) and then instantly paid off both the monthly minimum repayment, and the amount of the flight tickets, whether I would accrue interest for the purchase (on the assumption that after the minimum repayment, the additional repayment would instantly go to paying off the highest interest rate item, which would be the purchase).

The answer I received was that no matter whether I paid it off on the day of the transaction, I'd still pay outstanding interest. OK, I said, as one or two days' interest on $500 isn't too bad in exchange for free insurance. However, they said that the interest would apply for the full statement period, without giving specifics; and that I shouldn't use the card at all or I would accrue interest on any and all purchases. This was confirmed with the supervisor.

Is it wrong to think that assuming I pay off the minimum balance for the month, if I instantly pay off any outstanding purchases, I shouldn't have any outstanding balance and therefore not accrue any interest?

 

[Beta4Me]

Unless BW has abnormal T&Cs they are incorrect and what they have alleged they'd do is both illegal and unethical. I wouldn't stress. I've done exactly what you're suggesting and paid little to no interest but this wasn't with a BankWest card.

 

[Isochronous]

I think this used to be the case until the law changed a few years ago.

 

[Beta4Me]

I think this used to be the case until the law changed a few years ago.

Sort of. They'd apply your payment to the lowest interest amount (i.e. the BT itself) hence you had to pay out the whole BT before you could pay off your purchases. That changed post-GFC. What BankWest suggest in the OP has never been commonplace as far as I know.

 

[exceladdict]

Thanks. Your responses have given me the grunt to ask bankwest again, this time in writing

Will report back.

 

[exceladdict]

Hi All,

Reporting back with an interesting answer from bankwest. In summary, they advised the payment would apply in this order: Statement minimum payment, then the outstanding balance of the previous statement from highest to lowest interest rate, then outstanding items from the current statement period.

I.e. even though items from the current statement period have a higher rate, they are paid off after any outstanding balance from the previous statement.

While I don't agree with the concept behind this - and will question BW as to whether this breaches the law of highest % items first - at least it clarifies my questions as per their T&Cs.

Will post any further replies.

 

[Beta4Me]

Hi All,

Reporting back with an interesting answer from bankwest. In summary, they advised the payment would apply in this order: Statement minimum payment, then the outstanding balance of the previous statement from highest to lowest interest rate, then outstanding items from the current statement period.

I.e. even though items from the current statement period have a higher rate, they are paid off after any outstanding balance from the previous statement.

While I don't agree with the concept behind this - and will question BW as to whether this breaches the law of highest % items first - at least it clarifies my questions as per their T&Cs.

Will post any further replies.

Had the same problem with Citibank. Exactly the same outcome which was only detected when making payments and getting hit with interest and wrongly allocated payments. I got everything credited appropriately and 1000s of points as compensation. What BankWest have said IS ILLEGAL. It is convenient and likely a system limitation but they would lose with FOS.

 

[JohnK]

Yes Citibank is one of the exceptions. And of course that applies to Virgin Money as well and any other Citibank product.

 

[exceladdict]

For anyone interested, bankwest confirmed with me in writing that they are comfortable that their payment order complies with the 2012 reforms:

1. Outstanding amount from last statement balance, in order of highest to lowest % rate, starting with minimum repayment amount
2. Any purchases since last statement (and they can't figure out whether this is highest to lowest or lowest to highest)

I don't know whether it's worth my time picking a fight or not, given it will be over a few dollars, but if a 0% offer means my outstanding amount on top of the previous month's minimum payment isn't being charged interest, my gut says they can't pay that off before the purchases from the last statement.

 

[OzEire]

I'm watching this thread closely as I have the same issue with Citi applying repayments to the BT not purchases.

for those successful in having the interest reversed, how did you frame the complaint/request to your bank?

 

[OzEire]

Yes Citibank is one of the exceptions. And of course that applies to Virgin Money as well and any other Citibank product.

JohnK what do you mean that Citibank is one of the exceptions?

 

[medhead]

You need to read the terms and conditions. I have a similar experience with NAB, I think. The conditions explicitly state that payments order processing only occurs once a statement is issued. Statement issue is the key point in time. I would always advocate keeping purchase and balance transfer cards separate.

But if you must use your card you can't avoid interest on the purchase. I would suggest making the purchase 5 days before usual statement issue. Then pay it off one the statement is issued. Also if the purchase amount is greater than the minim statement payment, you only need to pay the purchase amount. That will count towards the minimum payment as well.

 

[exceladdict]

You need to read the terms and conditions. I have a similar experience with NAB, I think. The conditions explicitly state that payments order processing only occurs once a statement is issued. Statement issue is the key point in time. I would always advocate keeping purchase and balance transfer cards separate.

But if you must use your card you can't avoid interest on the purchase. I would suggest making the purchase 5 days before usual statement issue. Then pay it off one the statement is issued. Also if the purchase amount is greater than the minim statement payment, you only need to pay the purchase amount. That will count towards the minimum payment as well.

Thanks medhed, that is what the bank recommend I do if I was to make any purchases. The reason I wanted to bring it up here is to debate whether it's in the spirit of the 2012 reforms. I'm not convinced it is.

 

[JohnK]

JohnK what do you mean that Citibank is one of the exceptions?

I believe payments are applied first to transactions with the lowest interest rate.

 

[Beta4Me]

I believe payments are applied first to transactions with the lowest interest rate.

Thankfully that's not true. They follow the same system as BankWest. I had first hand experience a few months ago.

 

[Beta4Me]

I'm watching this thread closely as I have the same issue with Citi applying repayments to the BT not purchases.

for those successful in having the interest reversed, how did you frame the complaint/request to your bank?

I had a BT and used my card (thereby having no interest free days on purchases) and then immediately paid off those purchases from my card. Upon looking at my statement I saw they came off the BT balance not the purchases balance (because I paid mid-month not post-statement). I fought this and won on the basis that such payment apportioning is illegal: if I have no interest-free period then purchases have the highest interest rate (besides cash advances) and they must be paid off first. I also suggested that they credit they charges and compensate me for pain and suffering in having to chase it up or I'd involve to FSO and could open my mouth just enough for a class action to happen. I got all the interest and late payment fees credited + 10K points. Such a payment allocation practice is outright illegal as a result of the 2012 law changes (can't remember which piece of legislation it is off the top of my head) and they have NO room to move. Banks will rip off where they can get away with it, but ultimately have no choice but to capitulate.

 

[JohnK]

Thankfully that's not true. They follow the same system as BankWest. I had first hand experience a few months ago.

Citibank Readycredit.

Point 4 of the terms and conditions mentions

Payments are applied to Balance Transfer amounts before cash advances and retail purchases, and if your account has more than one Balance Transfer, the Balance Transfer at the lowest interest rate will be repaid first.

I think I have seen this condition with a few others as well but cannot remember now. Amex I think is one.

 

[Beta4Me]

Citibank Readycredit.

Point 4 of the terms and conditions mentions



I think I have seen these with a few others as well but cannot remember now. Amex I think is one.

Sorry, I thought we were talking credit cards. I don't have a ReadyCredit and that may well be true. Lawsuit waiting to happen for Citibank. I vaguely remember them rattling off the same thing to me about the Signature card and I referred them to the legislation (which they contravene) in response.

 

[JohnK]

Sorry, I thought we were talking credit cards. I don't have a ReadyCredit and that may well be true. Lawsuit waiting to happen for Citibank. I vaguely remember them rattling off the same thing to me about the Signature card and I referred them to the legislation (which they contravene) in response.

The Readycredit is funny. It is a credit card in a way but also a Debit card to confuse further.

I actually thought the legislation was in place for any accounts opened after July 2012 otherwise the old rules apply.

 

[Beta4Me]

The Readycredit is funny. It is a credit card in a way but also a Debit card to confuse further.

I actually thought the legislation was in place for any accounts opened after July 2012 otherwise the old rules apply.

No, it applied to everything from its effective date.