03 Oct Two-Cycle Credit Card Billing — Yet Another Reason Not to Feel Sorry for the Credit Card Companies
Two-Cycle billing is an underdisclosed billing scheme employed by the large purveyors of credit cards like Bank of America and Capital One. The manner of its operation serves to reward consumer behavior which results in ever growing credit card balances from month to month, while penalizing consumers who try to shrink what they owe from one month to the next.
It works like this: Let’s say you have a balance of $500 on your credit card at the beginning of Month One. During Month One, you purchase an additional $500 worth of goods, and so have a balance of $1,000 moving into Month Two. At the end of Month Two, your finance charge will be based on the average of Months One and Two, or $750, rather than $1,000 which is your actual Month Two balance. Thus, you were essentially “rewarded” for increasing your balance in Month Two. In Month Three, you pay down your balance and close the month with $250 due and owing on the credit card. You would think that you would only pay finance charges on the $250 that you owe. Wrong. Two-Cycle billing means that you will pay finance charges on $625, which is the average balance for Months Two and Three. The end result is that you have basically paid the finance charge for Month Two twice.
Bankrate has a more technical explanation of Two-Cycle billing here. Additional commentary regarding the iniquities of Two-Cycle billing can be found here. And evidently, there is currently a resurgence in the credit card marketplace of Two-Cycle billing within credit card products that are marketed to more high-end consumers. According to these commentaries, it would seem that the most repugnant aspect of Two-Cycle billing is the fact that it’s effects are underdisclosed and/or misrepresented to consumers.
This is yet another reason to not feel bad for the credit card banks when considering a bankruptcy filing; they do not have the moral high position on these issues. (By the way, if you are struggling with these kinds of feelings, in addition to this post, you should read the following: Was the Credit Industry Sincere in its Lobbying for Bankruptcy Reform; Should You Feel Guilty about Filing for Bankruptcy.)
By the same token, there are credit card banks that do not engage in consumer-hostile practices. Consider the list located here.
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