Capital One & order of repayments

snelmark

My wife & I use a Capital One card for its 1% cashback. Practically all our spending goes on it & I have always repaid in full every month.

Last October I received a leaflet (still got it) detailing the changes to order of repayments. This stated that any payments credited to the a/c after 19th November would pay off the most expensive debt first; this is in line with the new legislation.

I then completed a 0% balance transfer (1 year) for £1000 & made sure my next payment would be after 19th November (it was.) I paid off the full balance less the £1000. The result should have been zero interest charged.

Imagine my surprise when on my last two statements I have had c. £70 of "purchase interest" each time!

I have sent them several online messages, but they just keep stalling.
Not amused! I WILL get this sorted, so not too worried, but how annoying?
Do check your statements from Capital One if you are in a similar situation.
Anyone else got same problem?

[Deleted User]

Sounds like it's the interest incurred pre 19 November.

snelmark

Nope, I've paid in full every month for the last several years.
So no interest owing.

Consumerist

Is your statement balance £1,000 ?

£70 per month sounds very steep on a £1000 balance.

Something just isn't right, is it ?

Could be time for a formal written complaint.

snelmark

Quite! Update: after a tortuous 45
mins on the phone to them, it was
finally agreed that I was right & no
interest should have been charged.
Then asked how they would like to
compensate me for all the inconvenience,
held for the manager's manager &...
guess what? Got cut off. Will see what
happens now....

Consumerist

I wouldn't take anything a bank's call centre says over the phone as gospel.

I would still follow this up with a formal written complaint. Confirm anything agreed in your telephone conversation and also complain about the time spent trying to resolve the matter already.

If you are not satisfied with their response or they don't respond within 8 weeks then you can refer the matter to the free Financial Ombudsman Service.

Keep us posted. Good luck.

firsttimestudent

Dear Snelmark,

Actually it was correct for Capital One to have charged the interest.

Basically, there are 2 rules. (1)Your repayments always go to repay transactions that are already on a statement (as in paper statement or e-statement). Only when those have been completely repaid will your repayments go to NEW transactions since your last statement.

(2) when you do not clear your previous statement's balance AND current month's balance in full (as in your case with the £1000 balance transfer), purchases incur interest from the day of your transaction.

So, say your statement runs from 25th of a month to the 24th the following month.

25 October 2010 Statement - Balance £2500 (£1000 BT, £1500 from shopping made on 30 September 2010)
20 November 2010 - Paid £1500, left with statement balance of £1000

25 November 2010 Statement - Balance will be £1000 BT + interest for £1500 charged from 30 September to 19 November 2010 [As rule (2) not fulfilled]


And then, until your £1000 BT is fully cleared, every Purchases you make will always incur you interest from the transaction date to the repayment that you make FOLLOWING the next statement date, because:

25 November statement - £1070 (£1000 BT and £70 interest)
29 November - purchased £500 of goods
Say, 20 December - payment of £150 (£70 allocated to interest and £80 allocated to BT)

Any repayments made between 25 November to 24 December will clear the purchase interest then the balance transfer (not the £500 purchase).

Then, 25 December statement - sum of £920 BT, £500 purchase AND some interest from i) interest on interest of £70 AND ii)interest from the £500 purchase - i.e. your APR * approximately 26 days / 365 * £500. (As both rule (i) and (ii) not fulfilled)

If you then make the repayment of £500 on 20 January, the £500 purchase will have incurred interest from 29 Nov to 20 Dec (statemented) then another further interest bill from 21 Dec to 20 Jan (which will appear in 25 Jan's statement).


I hope it's clear! My explanation may not be the clearest, feel free to ask any questions.

It's good that Capital One refunded the interest. You may want to consider charging your purchases to an alternative card. That's why even with the new industry rules, it is still necessary to have a seperate card from the BT card - it only makes it easy to repay more expensive debt first, but does not completely abolish the interest of purchases for someone like you who always pay in full!

Consumerist

Yes, I agree. I was just beginning to suspect as much myself.

There will be two months of interest after the purchases are paid off.

First month pays off interest accrued pre 19 Nov.

Second month should pay off most, if not all, interest on that interest.

Since the interest calculations are carried out by automated means, it seemed unlikely to have been a miscalculation. Re-reading the OPs post, one of the statements he referred to came before 19 Nov. Not two statements after 19 Nov.

snelmark

Thanks for the replies.

So, if the interest was in fact correct (I have never paid interest on credit cards over the years, so had forgotten that if you don't repay in full, all purchases incur interest from date of purchase: d'oh!) then what is really the point of this much-trumpeted change in order of repayments? Merely that you pay a little less interest...?