To the surprise of no one, credit card companies are finding ways to work around the consumer-friendly prohibitions in the new Credit CARD Act. The Huffington Post recently ran a story detailing one such method, which lenders are using when cardholders have balances that carry more than one interest rate. For example, most credit cards have different interest rates for purchases than they do for cash advances. Recognizing that most cardholders would prefer to pay off the portion of the balance with the higher interest rate, the CARD Act mandates that any payments above the minimum must first be applied to the balance with the higher interest rate.
But the phrase “above the minimum” creates the loophole. If a cardholder only makes the minimum payment, and many cardholders do just that, the credit card company can apply the payment in any way they choose. And guess which balance the minimum payment gets applied to? Bingo, the lower-interest balance, which ensures that the cardholder will be in debt longer, and that the credit card company will make more money.
Credit Card Fees: How Banks May STILL Be Gaming Your Payments | The Huffington Post | May 18, 2010