Mea culpa, through simply not paying attention, I was a day late paying the full balance. Of course, that means interest is charged and not just for the one or two days that payment was late but for the whole time since the purchase date up to the payment date. That hurts, especially considering the usurious interest rates (mine is 19.5%) charged by the card companies, but hey it was my fault. Note to lawmakers and regulators - why is it impossible to set up a pre-authorized chequing payment for the full card balance on the due date so that late payment charges cannot happen at all?
What really aggravates is the gratuitous punishment applied by M2 type credit cards. Read this excerpt from a typical cardholder agreement (in this case a TD Visa card):
"You will lose your interest-free status on all Purchases and fees if we do not receive payment in full of your Balance by the Payment Due Date shown on your current statement. We will then charge interest on all Purchases and fees that appear on that month’s statement as well as all new Purchases and fees. Interest will be charged on the amount owing to us from the transaction date until that amount has been paid in full."
In other words, those words I highlighted in red mean that not only do you get dinged for the purchases on which you missed the payment, but also for purchases afterwards during the next billing period and until you pay the next full statement amount by the due date. Nasty! It's akin to being stopped for a speeding ticket and then being given another ticket for stopping in the wrong place on the roadway.
It does not help, once you know you have missed the payment date, to pay extra to cover the interest on the late payment. That does not stop new interest being applied. If you have paid late, the only fix is to stop using the credit card for the next billing period, or perhaps to make one tiny purchase on the card so that you have something to pay off in full, on which you will be charged a small amount of interest for sure but that will get you through the punitive cycle at minimal cost.
Which cards apply this crafty (if it took an hour on the phone for the Visa customer service rep to herself find out how this works and to explain it to me, what hopes does a consumer have to understand what they are getting into?) and nasty method, you ask? Pretty well all of them is the answer. The Financial and Consumer Agency of Canada publishes detailed comparison tables of all the credit cards here. In the table, look for the code M2 in the column Grace Period on New Purchases. All the major banks - TD, Royal, BMO, Scotia, CIBC - apply M2 across the board, except for National which uses the much fairer M1 method. The M1 method, as another excellent FCAC publication Getting the Most from Your Credit Card explains here, only applies interest on the late payment purchases and not on subsequent new purchases. M1 cards are also available from some other smaller banks and credit unions so check the tables and shop around. Another note to lawmakers and regulators - when next you think of ways to reform credit card practices I'd like to see the M2 method banned.
Interestingly, when I called to ask about the second set of interest charges on the new purchases (the M2 stuff), the TD Visa customer service rep very quickly cancelled the second interest charges citing the fact that I normally pay off the card balance in full. So, if you are in the same situation give them a call and ask.
Update Nov.1, 2010 - Good news. Apparently M2 has gone away - according to the Financial Consumer Agency of Canada website, footnote 5, M1 applies to all cards across Canada as of Sept.1, 2010.