Personal Finance

Locked: ALERT! Some banks changed "high to low" payment allocation! WARNING!

  • Last Updated:
  • Jan 10th, 2019 2:55 am
Tags:
None
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton

ALERT! Some banks changed "high to low" payment allocation! WARNING!

Important information for those who has life time/long term low interest rate balance and want to use a promotional balance transfer! You may end up paying 19% or more after promotional period over and cannot close it unless pay them full!

Folks,
I thought one of the Federal regulatory bodies changed some debt payment regulations in favour of consumers for payments, balances, account reporting, etc. and "high to low" method of payment allocation policy is mandatory for all banks and CC companies. I paid some on my CC outstanding balance which have low and high interest rates, and they said they changed the "high to low" method of payment allocation (payment will go to higher interest rate balance first and then remaining, if any, to lower interest rate balance) policy effective March 20. This is not fair IMO and banks and CC companies will s***w us more if this is allowed. I will contact Consumer Affairs Office, but would like to hear some thoughts on this. Thanks

EDIT:
Fact one (Thanks fahk):
Under the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations,

Section 4
(1) If different interest rates apply to different amounts owing for a particular billing cycle on a credit card account, the institution must allocate any payment made by the borrower that is greater than the required minimum payment for that billing cycle among those amounts using one of the following methods:

(a) by allocating that payment first to the amount with the highest interest rate and then allocating any remaining portion of the payment to the other amounts in descending order, based on their applicable interest rates; or

(b) by allocating that payment among those amounts in the same proportion as each amount bears to the outstanding balance owing on the credit card account.

If you want to make a complaint, you need to direct them to FCAC as it is not within provincial jurisdiction.
http://www.fcac-acfc.gc.ca/eng/partn.../index-eng.asp

http://www.fcac-acfc.gc.ca/eng/resource ... p#lump-sum

Edit 2:
So far MBNA and RBC are two banks that do not use HIGH to LOW interest first allocation method (Thanks epiphano).
Share:
23 replies
Deal Fanatic
Dec 5, 2006
5000 posts
820 upvotes
Markham
HamsiBrain wrote:
Mar 30th, 2012 9:44 pm
Folks,
I thought one of the Federal regulatory bodies changed some debt payment regulations in favour of consumers for payments, balances, account reporting, etc. and "high to low" method of payment allocation policy is mandatory for all banks and CC companies. I paid some on my CC outstanding balance which have low and high interest rates, and they said they changed the "high to low" method of payment allocation (payment will go to higher interest rate balance first and then remaining, if any, to lower interest rate balance) policy effective March 20. This is not fair IMO and banks and CC companies will s***w us more if this is allowed. I will contact Consumer Affairs Office, but would like to hear some thoughts on this. Thanks

Which bank? I thought high to low is law now?
Jr. Member
Dec 21, 2008
152 posts
22 upvotes
smartie wrote:
Mar 30th, 2012 10:14 pm
Which bank? I thought high to low is law now?

I just got a letter from PC Financial that said they would now apply payments to the lowest interest rate first. I had also thought it was now law that banks had to apply payments to the highest interest rate first.
Deal Addict
Apr 5, 2007
1308 posts
404 upvotes
Canada
Under the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations,

Section 4
(1) If different interest rates apply to different amounts owing for a particular billing cycle on a credit card account, the institution must allocate any payment made by the borrower that is greater than the required minimum payment for that billing cycle among those amounts using one of the following methods:

(a) by allocating that payment first to the amount with the highest interest rate and then allocating any remaining portion of the payment to the other amounts in descending order, based on their applicable interest rates; or

(b) by allocating that payment among those amounts in the same proportion as each amount bears to the outstanding balance owing on the credit card account.

If you want to make a complaint, you need to direct them to FCAC as it is not within provincial jurisdiction.
http://www.fcac-acfc.gc.ca/eng/partners ... ex-eng.asp
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
cahk wrote:
Mar 31st, 2012 12:57 am
Under the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations,

Section 4
(1) If different interest rates apply to different amounts owing for a particular billing cycle on a credit card account, the institution must allocate any payment made by the borrower that is greater than the required minimum payment for that billing cycle among those amounts using one of the following methods:

(a) by allocating that payment first to the amount with the highest interest rate and then allocating any remaining portion of the payment to the other amounts in descending order, based on their applicable interest rates; or

(b) by allocating that payment among those amounts in the same proportion as each amount bears to the outstanding balance owing on the credit card account.

If you want to make a complaint, you need to direct them to FCAC as it is not within provincial jurisdiction.
http://www.fcac-acfc.gc.ca/eng/partners ... ex-eng.asp
Thanks for the info CAHK. I assume this regulation includes CC companies (MBNA Bank, now part of TD)
I made a payment and they apparently allocated my payment by "Any amount that is paid above the minimum will be distributed amongst your balances based on the percentage of balance at each rate. So let's say you have 25% of your balance at rate X and 75% of your balance at rate Y, 25% of your payment above your minimum due will be applied to X, and 75% would be applied to Y. To avoid higher interest on the account, you would have to pay the account to $0." This is I believe against the regulation above. I complained it to Consumer Affairs Office and hopping they will handle this.

Everyone, beware of MBNA payment change!
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
"Allocation of payments on credit card accounts
Some credit card accounts have different interest rates for different types of transactions, such as retail purchases, cash advances and balance transfers. When you make the minimum payment on your credit card account, federally regulated financial institutions can apply the minimum payment portion of your payment however they like. Usually they will apply it against the portion of your balance with the lowest interest rate.

However, under the new regulations if you pay more than the minimum amount, the additional amount of your payment now must be applied in one of the following two ways:

to the portion of the balance with the highest interest rate, and any remainder to other amounts from highest interest rate to lowest, or
proportionally to all portions of the balance."

I knew regulations might give some open door to financial institutions :( OR makes a big difference and apparently nothing has changed in favour of us, the consumers :(
NOW financial institutions have an option to distribute payments PROPORTIONALLY :( Of course they will choose proportion method rather than allocating payment to HIGH INTEREST RATE FIRST :(
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
cambridge99 wrote:
Mar 31st, 2012 12:02 am
I just got a letter from PC Financial that said they would now apply payments to the lowest interest rate first. I had also thought it was now law that banks had to apply payments to the highest interest rate first.

I think they cannot do that. Read the post above or section copied below :

"Allocation of payments on credit card accounts
Some credit card accounts have different interest rates for different types of transactions, such as retail purchases, cash advances and balance transfers. When you make the minimum payment on your credit card account, federally regulated financial institutions can apply the minimum payment portion of your payment however they like. Usually they will apply it against the portion of your balance with the lowest interest rate.

However, under the new regulations if you pay more than the minimum amount, the additional amount of your payment now must be applied in one of the following two ways:

to the portion of the balance with the highest interest rate, and any remainder to other amounts from highest interest rate to lowest, or
proportionally to all portions of the balance."
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
smartie wrote:
Mar 30th, 2012 10:14 pm
which bank? I thought high to low is law now?

mbna
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
I thought Financial Consumer Agency of Canada will and should give consumers a priority.

1. IMO, Banks and all financial institutions are the winners of this regulation
2. Despite recent economic crisis and recession, banks are more profitable then ever (just look at their annual reports) and guess who is paying for them :(
Sad to say but consumers are the VICTIM of this regulation :(

Beware everyone if you have an MBNA credit card! I suggest do not accept balance transfer, etc as when it's over, you may end up regular interest rate of 19.99% :(
Sr. Member
User avatar
Jun 6, 2009
813 posts
229 upvotes
Montréal
That's how RBC allocates payments to their credit cards. It's usually a good idea to have a card for balance transfers and another one for purchases.
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
epiphano wrote:
Mar 31st, 2012 8:58 am
That's how RBC allocates payments to their credit cards. It's usually a good idea to have a card for balance transfers and another one for purchases.

Agree on having separate cards for balance transfers and for daily purchases and I have been doing this for years :) The thing is, when you have long term low rate balance just it is better beware of receiving new promotional balance transfers offers. They may charge 20% APR when promotional period over for the second portion and we may end up paying 20% for the second portion unless we pay them up which we will lose long term low interest rate of the first portion.

I bet most RFDers still think their payment will go to higher interest rate portion first (I was one of them). MBNA or other banks may and will no longer follow high rate allocation first!

Do you recall when RBC changed their payment allocation policy and no longer allocate payments to HIGHER portion first?
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
cambridge99 wrote:
Mar 31st, 2012 12:02 am
I just got a letter from PC Financial that said they would now apply payments to the lowest interest rate first. I had also thought it was now law that banks had to apply payments to the highest interest rate first.

They should not and cannot do this. Should be a misunderstanding. Law says:

"Allocation of payments on credit card accounts
Some credit card accounts have different interest rates for different types of transactions, such as retail purchases, cash advances and balance transfers. When you make the minimum payment on your credit card account, federally regulated financial institutions can apply the minimum payment portion of your payment however they like. Usually they will apply it against the portion of your balance with the lowest interest rate.

However, under the new regulations if you pay more than the minimum amount, the additional amount of your payment now must be applied in one of the following two ways:

to the portion of the balance with the highest interest rate, and any remainder to other amounts from highest interest rate to lowest, or
proportionally to all portions of the balance."

Just FYI
Banned
User avatar
Feb 15, 2008
26318 posts
3201 upvotes
Calgary
What's the big deal? Anyone who carries a "credit card" balance is pretty much certifiably a moron.

If the banks can't rip them off through credit cards, the banks will certainly rip them off in other ways.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
[OP]
Deal Addict
User avatar
Aug 21, 2008
1251 posts
576 upvotes
Hamilton
Mark77 wrote:
Mar 31st, 2012 4:01 pm
What's the big deal? Anyone who carries a "credit card" balance is pretty much certifiably a moron.

If the banks can't rip them off through credit cards, the banks will certainly rip them off in other ways.

Wrong! Anyone who carries a CC balance with lower cost of debt, i.e. long term and lower interest rate than inflation or prime, is a smart guy not a moron. Just know and play with the rules, outsmart banks and CC companies and invest/spend wisely. Make sure to follow minimum requirements for payments and keep your eyes open. In our case bank changed the payment allocation rules in a sneaky way from high interest first to proportion method for multiple interest rates.
Sr. Member
User avatar
Jun 25, 2008
548 posts
218 upvotes
HamsiBrain wrote:
Mar 31st, 2012 11:56 pm
Wrong! Anyone who carries a CC balance with lower cost of debt, i.e. long term and lower interest rate than inflation or prime, is a smart guy not a moron. Just know and play with the rules, outsmart banks and CC companies and invest/spend wisely. Make sure to follow minimum requirements for payments and keep your eyes open. In our case bank changed the payment allocation rules in a sneaky way from high interest first to proportion method for multiple interest rates.

How was it sneaky? I'm pretty sure they must have communicated the change, along with an offer to cancel the card if you found the terms disagreeable.

I know it's a favourite pastime to crap on banks but people have to take responsibility for understanding the terms of their financial instruments and any changes made to those terms.

Top