Should Credit Card Companies be Punished for Baiting Consumers?

One of America’s leading credit card companies, Capital One, has been accused of luring customers to switch to its 0% interest credit card balance transfer deal with a tactic that soon sees a glut of interest charges being levied on all new purchases. There are already Plaintiffs lining up to form a class-action against the company. Should Capital One be accountable for its actions?

Here are the details of the controversy:

Bait and Switch

The name for the tactic is “bait and switch” – it works by encouraging consumers to take advantage of an apparently bona fide zero-percent balance transfer deal for their existing credit card debt with another companies. However, unbeknownst to the consumer, once they use the credit card for any new purchases, their account will start to accumulate high interest. These new interest terms are very hard to understand and companies like Capital One have been accused of misleading consumers with deliberately convoluted and sneaky accounting moves that use complex calculation techniques to apply interest in this way.

Class Action Sought

Already, a Capital One customer is seeking class-action status for this phenomenon. Margaret Murr, a Plaintiff from Surprise, Arizona, has shared her story in a bid to gain recognition of the plight and to help other consumers stand up and join her in the group lawsuit.

According to the details of her case, she took up Capital One’s offer of 0% APR on balance transfers for 12 months. The offer said that consumers could “write a check to yourself – 0% for 12 months” and also stated that “We will begin charging 0% interest on these checks and transfers on the transaction date.” Along these lines, Ms. Murr wrote an Access Check for $4,358.80 in October 2012.

Shortfall in balance payments

In the coming months after the deal was in full swing, Ms. Murr reported that her payments were only partly applied to the promotional balance transfer rate. The consequence of this was a shortfall within the balance of regular purchases such that even when the customer repaid the regular purchase amounts in full each month, she still owed more.

Cancelling the interest-free grace period

Effectively, by creating the shortfall through only partial application of the promotional 0% interest rate on balance transfers, Capital One is alleged to have rescinded the interest-free grace period. Instead, interest charges from Access Checks start to accrue interest from the very moment the consumer uses the card for an ordinary purchase during the promotional period of the Access Check.

Loss of no-interest deal

For Ms. Murr, this meant that while she was making regular purchases on her credit card throughout the month, she was gathering interest at an alarming rate, at 13.9% from the very same day that the transactions were made through the account. According to this credit card works, unless a consumer pays down the whole balance of the transfer and the purchases immediately, they will lose the no-interest deal.

Even $1 unpaid reverses the 0% deal

For example, if even $1 of new purchases were not paid off, the 0% interest deal on the whole promotional balance transfer disappears, being replaced by the 13.9% interest rate. Ms. Murr and the lawsuit allege that nowhere in the offer did Capital One state that the grace period would be rescinded unless the entire purchase balance and special balance transfer were paid at once and in full.

Further payments applied

In addition to this, Ms. Murr also paid a 2% transaction fee and her balance in full each month, yet she was also allegedly charged incorrectly calculated interest charges, late fees and never got to enjoy the benefits of the interest-free grace period. As a consequence, her credit score and credit reports suffered and she also became a target of debt collectors.

What are Capital One accused with?

The company have been accused of not honoring their agreement and the lawsuit alleges fraud, breach of contract, breach of the implied covenant of good faith and faith dealing and violation of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act).

Should the credit card company face consequences?

If the lawsuit finds that Capital One has breached the Credit CARD Act, the company will face harsh consequences. The Act states that credit card companies are supposed to follow “fair and transparent practices relating to the extension of credit under an open end consumer credit plan.”

Have you received a nasty surprise in the form of hefty interest charges from a balance transfer deal gone wrong? Share your experiences in our comments section, below.