Why do Credit Cards charge your future usage ?

From time to time, we may heard news that more and more people are unable to pay their credit card debts. As a result, credit card companies must be earning a lot of money in return. On the contrary, credit card companies have been facing quite some challenges.

More and more people are settling their due payment in full monthly. This results the card company unable to earn money from this group of people. Some users even maximize the interest free period to 2 months and pay nothing to enjoy such great facility.

Due to the stiff competition among the card issuers, every time an annual fee is charged, the card users will simply stop the account.

When late fee and interests are charged, more and more users know how to get them waived.

Generally people are getting better in managing their credit card usages. More and more people are more personal finance savvy now.

Credit card used to be able to get their profit back from the people who owe them money. But now they can keep charging interest to their debtors but eventually the debtors went bankrupt and don't pay at all. Credit card companies ended up didn't earn much from this group of people neither.

This posts a problem. If the credit card companies can't earn as much as it used to be from the people who don't have money to pay. What can they do ?

Well, the other group of people never owe money. That means they must have money. So credit card companies think of a smart way to earn money from them. If you didn't pay your last month balance in FULL, we will charge you interest NOT only on your remaining balance BUT also on all your subsequent future transactions.

How can they get people to buy off with this new innovative but abusive concept ? Well, that has already been show cased in last article.

There you go, as and when people are getting better in their personal finance. Some giant finance institutions may get into troubles, especially those who earn when you spend. As a result, they will always beef up more advertisements and more 'creative' messages to make sure general public are confused what 21st century personal finance is really about.

Shouldn't we let credit card companies earn some ? Since they provide us great facilities ? Well, sure ! They have been earning 1-3% from the merchant every time you use the card. That alone is a multi-millions income every month.

Credit Card forward calculate interest

How did it happen ?

Why do they need to do this ? ( this article )

What can we do ?

Charge your future usage : how did it happen ?

The way credit card companies forward calculate interest has sicken many users. Together with the 5 cents round up mechanism, there are cases where its not even the users fault not to totally pay off their last month balance.

Some are still in shock how consumers can be abused in such a way. Well, this is how ...

Credit card companies used to charge 18% interest on the amount you underpay and owe to them. Seeing that this high interest has caused many people in debt and even bankruptcy, banks are urged to reduce that rate. So the project of multi-tier interest rate was born.

If the amount you owe is not that much, banks may reduce that rate to 13.5% for example. Like wise, if you continue not to pay, banks will have the rights to charge 18% interest again. So lower interest rate is imposed on lower loan amount.

So far so good isn't it ?

Well, banks are going to give you more. In addition ...

We will give you 22 days interest free on all transactions, if last month outstanding balance, as per monthly statement, are settled within due date. In cases where this interest free is not applicable, we will charge interest on all transactions from the posting date.

Don't doubt my grammar, its a carefully formulated sentences very similar to the actual terms and clauses. All the commas and periods are there for a good reason.

It is still fair isn't it ? What it says is if I paid last month balance in full, I will not be charged interest for another 22 days. Else of course I should pay interest.

There are 2 sentences up there.

The first one evolves around monthly statement. If the bank generates your statement on the 1st of the month, you don't need to pay interest of the amount on that statement up to 22th. Which is also usually the payment due date. Ok still ...

The 'all' in blue color means all the transactions on that monthly statement. Not 'all' the other transactions you used before and after the statement. Guess what, the transactions you used before is a brought forward balance, so its NOT a transaction and therefore will continue be charged interest and excluded from this interest free offer. You are also NOT getting interest free for all future transactions because they are NOT on that statement yet.

The second part starts with "if interest free is not applicable". It doesn't say if you don't pay then we charge you. There are many other reasons interest free is not applicable and no matter what they are, you will be charged. So there is ONE specific scenario you may get interest free period and ALL THE OTHER scenarios would allow us to charge you. Thats basically what it sums up to.

Now there is also a word 'all' in the 2nd part. This time, there is no statement mentioned. This 'all' would mean ALL transactions including the future ones you are going to make. And the interest is calculated based on the posting date which is totally ok even if it is a future date.

I am not quite sure if I have presented this clearly. There is the trick of saying something seems genuine and simple but yet a small word in it turn the whole thing around. A seems-to-be very thoughtful offer has been given, most of us were ok with it and now its too late to turn the game plan.

Banks came to us on day light, offered us lower interest tiers and a new way to calculate interest ( with interest free period !! ) and we bought it. So now its too late for us to pursue normal channels to change this. Whatever left is to propagate this knowledge to more and avoid to be taken advantage off.

If still want to do more, please get more people to read this series of articles ...

Credit Card forward calculate interest

How did it happen ? ( this article )

Why do they need to do this ?

What can we do ?

Credit Card forward calculate interest

If you have a remaining unpaid balance of $0.01 in your credit card from last month,

and then you use $1,000 this month ...

You may think the interest 18% should be imposed to your 1 cent balance which is ignorable but in actual fact, the interest is calculated based on your future expense as well. So ...

$1,000.01 x 18% -> pro rate to 1 month => $15

See the magic of finance ? You could get charged $15 from your $0.01 remaining balance. Despite your $1,000 usage is not even due yet !

A handful of local banks are already exercising this interest forward calculation method. Most of the international banks on the other hand agree this is ridiculous and didn't enforce this calculation on small remaining amount.

But recently banks lose many credit card accounts so they are quietly imposing this again to upbeat some profits.

Many good card users are caught only after some time because they just couldn't believe such a ridiculous abusing technique can exist around us for more than 2 years already.

When inquired if banks have approval from Bank Negara to do this, a very ambiguous respond is given. Apparently when banks were gaining approval for "multi tier interest", this forward calculation method is part of the small clauses. It is unknown if BNM was just being sloppy or they just quietly pass it through.

Either way, you should have another proof that the big guys will NEVER take care of your personal finance.

Credit Card forward calculate interest ( this article )

How did it happen ?

Why do they need to do this ?

What can we do ?

Malaysia RM50 Credit Card fee waivers

It was mentioned before Malaysia's government initiative to charge RM50 tax on credit card to 'reduce' debt is a plain zany act. When confronted by many institutions and experts, Najib (some of his photos here) even goes public exercising his power to enforce his budget 2010.

Just in case you haven't heard, the time to pay this RM50 tax is the same as your annual fee due month. So if your cards are due in December 2010, you can hold it for another year before cancelling it out. But if your cards are due in Jan 2010, you better find out when the statement date is. You HAVE TO cancel your cards before the statement is generated. Once this RM50 tax is imposed, the banks will NOT be able to waive it for you even if you cancel your cards AFTER the statement is printed.

So far I only know UOB and EON banks will waive this RM50 tax for real.

You have to use your EON cards for 36 times to waive this RM50 tax. Normally you will have to use 24 times to waive its annual fee which is about RM150. So another 10 times more should be ok for those who really use the card.

UOB is one of the first banks to waive this tax in public. Varies options may be available but the one I know is just use RM300 and you will get back RM50 cash benefit to knock off this RM50 tax. UOB is also closely tighted to Robinson so if you shop there often, it could be the card to keep.

see ? The effect is already started .... you have to spend much more in order to save this RM 50 ...

All other cards who offer you RM50 rebate by using the points you have accumulated are just playing with your Finance IQ. It is a common practice that you get back a minimum of 0.2% rebate by using credit cards in this part of the world. The return may reach you either in the form of points accumulation or direct cash rebate on the bill. So giving you the option to 'waive' this RM50 tax with your points is the same like taking your money from your left pocket when you said you want to avoid taking out money from your right.

Do you know any other banks who will REALLY waive this RM50 tax ?

You can use this form to cancel your credit cards

click here to download as a pdf file.

Will Banks take care of your interest ?

I was once young and naive. Banks are so big, earn so much money that they wouldn't bother to cheat my money. Its safe to leave everything to them and they will take good care of my money, especially when I am not a big user ... but ...

Notice in this statement that previous left over balance is only 1 cent. As a matter of fact, this account has been having 1 cent balance for 2-3 months. Recently I had to use up to RM 100 so that I can use ALL the points to exchange for food voucher before cancelling it. Suddenly there is a finance chargees of 22 cents.

How in the world can there be a 22 cents finance charges out of a 1 cent balance ? The finance charge is 16%.

After digging out the whole Eon team including the highest management demanding for an explanation, no one can answer that except apologizing and waiving the said ridiculous calculated fee. I couldn't help to think how many people out there have been abused by such system bug ? 22 cents x 10 million EON credit card holders = 2.2 millions a month.

Govt. goes public - Don't subsidize the RM50 !

It was hinted before that government may try to stop banks to subsidize credit card users on the RM50 fee to be enforced by the government starting next year.

Today its no longer an internal warnings between government and banks. Government has made it public in the news on this. But of course it was made in a polite way,

if banks subsidize our RM 50

we will FAIL to reduce

Credit Card Debt problem !

Actually following one of the latest sharing commented by Alan in last post, banks faced many rejections on the ideas they proposed to bank negara. But BNM has no control whatsoever on the points accumulated in your credit cards. So when banks use the point system to return the RM 50 value to the credit card users, government fail to stop that approach. Hence, government goes public with news to add public social pressure to the banks.

Its interesting to see how politic and finance fight so fierce over our precious RM 50.

I am predicting the next move from bank is introducing 1Card - use ONE bank's credit card as to replace ALL other banks' card. Such Credit Card will have combined limit of all your other cards. The trouble they are facing now is to combine all the rebates offers because each bank only have contracts with certain retailers.

Imagine a Card that you can swipe up to $200,000 !! You can buy a house instantly with a plastic !!

MYR 50 credit card fee - Solve debt with more debt !?

Seeing that credit card debt has reached a serious and dangerous level, Malaysia government will start imposing MYR 50 fee on each credit card hoping people will reduce the use of credit cards and therefore reduce debt.

Although it may sound rational to some people, but its actually somehow a bit funny ...

For those who keep credit cards in closet, they actually use the cards as emergency loan facility. Admitting to hospital will go through smoother with a gold card etc. These people did not owe any credit card debt, they were NOT part of the problems to start with. But now they are affected and has to cut off some of these FREE loan facilities. Credit card debt NOT reduced, good people's personal finance affected.

Some pay off their credit cards in full every month. They use card so that they don't have to bring lumps of cash around. They were NOT part of the debt problem but now they need to take more risk bringing more cash with them. Credit card debt NOT reduced, good people's personal finance affected.

Then there are those who owe money - who have long winding credit card debt. They just can't pay off the debt. They are the target group to be help with this policy. How can adding MYR 50 on top of their debt help them ? They can't just simply stop the card, they will have to pay their debt. As long as they haven't finished paying their debt, the account is running and MYR 50 will be added every year ... as an encouragement fee to 'help' them reduce debt !? Credit card debt INCREASED, bad people's personal finance PENALIZED.

Lastly there are these group of people who haven't had credit cards yet. So when they apply for one, they will think twice. But these people are NOT part of the debt problem to be solved to start with ! Credit card debt NOT reduced, good people's personal finance instilled.

Call me dump and crazy, how can this MYR 50 fee help reduce credit card debt again !? There may be some good points identified but NONE will reduce Today's credit card debts !!

After all, do you think a credit card debt person wouldn't pay a small fee of MYR 50 to get a new card from this lady ? After all, he can pay off this MYR 50 in his next 30 years which is only less than $1 a month.

Real Life examples how Banks abuse Credit Card Holders

A is M-ban, one of the banks in Malaysia and D is Daniel a citizen.

D : I receive a SMS asking me to make payment but I don't have any M-ban credit card

A : Sure sir, may I know your name ?

D : Daniel XXX

A : Ok Daniel, I have to ask you a few questions for verification.

D : Ok.

( after some identity card, address info sharing ... )

A : What is your Credit Card number ?

D : I don't have one.

A : Sir, without your credit card number I cannot help you.

D : But that is the whole point, I am complaining to you that I do not have M-ban credit card and yet you are asking me to make payment, 

A : I know sir !  You have to tell me the credit card number before I can help you.

D : I don't have it.  Do you have other verification question ?

( silence for a short while )

A : Sure ... when is your card expiration date ?

( at the end, A "advised" D to make payment to avoid any further delay )

HL is another local bank in Malaysia and this time MS is Mew Siang, a HL-ban credit card holder.

MS's card is due renewal in June but MS doesn't need the card anymore.  So MS wrote an official email to HL to cancel the card back in May ( 1 month before renewal).  After 14 days, MS didn't hear from HL so MS called HL.

MS :  I wrote in to cancel my card a few weeks ago but I haven't heard from you since.

HL :  Sure miss, Let me .... ( after 5 minutes of verification )

HL :  Yes Miss, we have already received your cancellation letter and now it is in process.

2 months later in July, MS received a statement asking payment for renewal fee.  Soon after that MS received a call from HL.

HL :  Miss, in order for us to process this cancellation, you will need to fully pay up all the due amount !

MS : But I cancel this card 2 months ago !

HL :  Sorry miss, there is NO way I can cancel this card for FREE.  But you can keep it and use for 12 times.  Then we will waive the renewal fee for you !

MS :  What ?  I cancel this card and you ask me to use it ?

HL : Yes, that is the only way you can waive your renewal fee.

( MS firmly assure HL that she has all the documents in record and will submit to consumer rights report if HL doesn't do this properly )

HL : OK miss, I will cancel you card.

WTF ?  Didn't HL just said there is NO way she could cancel this card ?

is the credit arm of Aeon group who also own the famous supermarket Jusco.  Mou Tan, a consumer,  applied for its credit card because she was assured to collect 1.5X more points when she shop in Jusco which she always does.

After months of using the card, she found it extremely hard to make payment.  The only doable way to make her monthly payment is at Seng Heng, an electrical shop near by.  But in subsequent bill statement, it shows that an extra of $2 was billed because she was making payment in Seng Heng, although that was instructed by AEON staff and without prior acknowledgement for such a fee.  She also found out that all her purchases are NOT collecting 1.5X points as promised earlier.  As a matter of fact, there are NO Points collected with her newly applied credit card.

She called to claim her points but without success.  There are so many terms and conditions that it is just not worth it to keep the card.  So she cancelled it.  Upon cancellation she was told the total amount to pay in order to cancel the card.  So she paid that.  2 months later, another bill come asking for more payment.

MT : I already cancel this card and already pay in full as instructed.

Aeon : Ya, I know.  But there are still some remaining amount here you have to pay.

( after 5 calls totalling 2.5 hours of no progress.  MT gave way and pay the remaining small amount hoping to end  the issue fast )

3 months later, another bill come asking payment for 4 cents.  MT ignored it every month and until today MT still get a bill asking for 4 cents.  Since 3 years ago.