Credit card interest grace period going away??

[glock35ipsc]

Not that this concerns me, we don't have any credit cards, but...... I have read on a few different forums that at least a few credit card companies are considering doing away with the grace period between the purchase and interest applying. In other words, interest on your purchase will begin at the time of purchase.

I have not been able to find anything about this on the web, although I admit that I haven't spent a great deal of time looking. Has anyone else heard of this, or is it a myth?

[sweeps]

Sounds like an urban legend to me. If it were to happen, I'd cancel my cards in a flash and go back to paying cash.

[disneysteve]

I agree with sweeps. They would lose a ton of customers including those who carry a balance and those who don't. Why would I use a payment method that immediately tacked on a fee?

[glock35ipsc]

I figured as much, but thought I would ask anyhow.

[simple987]

My sister signed up for a Capital One credit card many years ago and it immediately charged interest from date of purchase. Because of this and several other bad customer service experiences, I won't have anything to do with Capital One.

[boosami]

The proposed amendments to the lending acts taking effect July 2010 lengthen the grace period to a 21-day minimum, I believe.

[Like2Plan]

I will admit to being totally adicted to the convenience (and the rewards) of using credit cards, but I agree with DisneySteve and Sweeps. If they started charging interest right away, I would not use a CC.

[glock35ipsc]

May not be too far off after all.... third paragraph:

Credit Card Industry Aims to Profit From Sterling Payers - NYTimes.com

[Inkstain82]

They won't do it, at least not for low-risk customers. They'll lose merchant fees to debit cards.

[kork13]

Originally Posted by Inkstain82

They won't do it, at least not for low-risk customers. They'll lose merchant fees to debit cards.

The challenge of "YOU WON'T!" tends to be a very dangerous one... But honestly, I do agree with you.... People who are smart about their money will simply change their habits in stride with any changes the CC companies may make.

[wincrasher]

Part of the propaganda machine. The lobbyists are in full swing to scare people into calling their congressmen to vote against legislation imposing regulation.

[glock35ipsc]

Originally Posted by wincrasher

Part of the propaganda machine. The lobbyists are in full swing to scare people into calling their congressmen to vote against legislation imposing regulation.

It seems as though not enough people called!

[Like2Plan]

Originally Posted by kork13

The challenge of "YOU WON'T!" tends to be a very dangerous one... But honestly, I do agree with you.... People who are smart about their money will simply change their habits in stride with any changes the CC companies may make.

I admit that I can be trained. Ages ago, we used to buy groceries with checks until a CC was offered that gave 5% back on the grocery purchases.... Without that incentive, I doubt we would have switched to plastic. Spending the quarterly reward checks was sweeeet and the CC company had successfully changed my behavior! Then they reduced the reward to 2%. That card was canceled in favor of another.


The CC companies could train me again --away from the use of CC if there are fees for using it vs using cash or debit card. My DS's college used to accept CCs the same as cash, but recently they started adding on a 2.5% convenience fee. I will admit that using the CC had been wicked easy and it was nice to have a 30 day float to give time to file for the funds with the 529 plan and then receive a reward on top of it, but not worth 2.5%. So no more charging, we plan ahead and just use a check.... The same procedure could be applied to any other purchase..

[Like2Plan]

Here is another article that I read recently in the WSJ: Link to complete article: U.S. Banks Risk Losing Trump Card

Basically, the article is explaining why they believe "the golden age of credit-card profitability" is unsustainable.

Here is another quote from the article:
"Also, high credit losses in this recession has disproved a common boast from card lenders that they were uniquely skilled at setting appropriate interest rates to reflect the risk of each borrower."

This is something that I have questioned for a long time. It seems to me the CC company model is to loan more money than the borrower can possibly pay off in one credit cycle (or even 12 or 36 or more!) and then increase the interest rate. But, in a shrinking economy, there comes a point where it wouldn't matter if the CC company charged 100% interest, the borrower can not pay it back and defaults or files BK. I have no idea what the rate of this is, but with unemployment going up, I suspect it is on the rise. No matter how good you are at paying your bills, if it comes to paying back a CC or putting food on the table which option do you think you would take?

If you think the sub-prime mortgage lending was crazy, what insanity is it to offer unsecured loans (ie credit limits) that sometimes even exceed the annual household income? I think the most CC risk models are seriously flawed....

[red92s]

Originally Posted by Like2Plan

This is something that I have questioned for a long time. It seems to me the CC company model is to loan more money than the borrower can possibly pay off in one credit cycle (or even 12 or 36 or more!) and then increase the interest rate. But, in a shrinking economy, there comes a point where it wouldn't matter if the CC company charged 100% interest, the borrower can not pay it back and defaults or files BK.

I've read similar articles that agree that that CC companies not raising rates would be more profitable. Essentially now CC companies are bumping rates because the common mantra is "pay of the highest rate loan first" so they want to be first in line to get repaid. Then you have a inverse-price-war scenario where banks are raising rates against each other trying to be first in line to get repaid, until the borrower falls flat and files for bankruptcy and leaves them all out in the cold.

[jsk]

Definitely, I would cancel my CC !!

[Alex_Adviser]

Originally Posted by glock35ipsc

Not that this concerns me, we don't have any credit cards, but...... I have read on a few different forums that at least a few credit card companies are considering doing away with the grace period between the purchase and interest applying. In other words, interest on your purchase will begin at the time of purchase.

I have not been able to find anything about this on the web, although I admit that I haven't spent a great deal of time looking. Has anyone else heard of this, or is it a myth?

That is some type of a rumor that you have come across. Its common sense that if they charge interest from the time the purchases are made then no one would prefer to buy from a credit card, instead pay everything by cash. I am still having 2 credit cards, if this was the scene then i would have definitely closed them.

[disneysteve]

Originally Posted by Alex_Adviser

Its common sense that if they charge interest from the time the purchases are made then no one would prefer to buy from a credit card

Alex, millions of people already do this every day. If you have an outstanding balance on your card and continue to make new charges to the account, you are paying interest instantly. I agree that it makes no sense. That's why I pay my bill in full every month, but lots of people don't.

[boosami]

Originally Posted by disneysteve

Alex, millions of people already do this every day. If you have an outstanding balance on your card and continue to make new charges to the account, you are paying interest instantly. I agree that it makes no sense. That's why I pay my bill in full every month, but lots of people don't.

Some cards are even worse than that... They use two-cycle billing. This calculates the balance you pay interest on from the previous month as well as the statement month. Basically, you pay interest on charges that you have already paid off last month. This is a tricky way for the credit card company to say they have a grace period, but the minute you carry a balance the grace period retroactively disappears. Now that's scary!

Discover is one of the companies known for two-cycle billing practices. And it's one of the reasons I do not have a Discover card. (Though, two-cycle billing does not affect you if you do not carry a balance.)

[disneysteve]

boosami is correct and two-cycle billing is one of the things banned in the new credit card rules that Congress passed.