Clarifying new rules for how card payments are applied to balances

Only payments ABOVE the minimum are to be applied to higher APR balances

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I just received my April 2010 credit card statement. I'm paying 16.99 percent interest for new purchases, 21.99 percent for past purchases and 3.90 percent for balance transfers. Most of my March payment of $300 was applied to the 3.90 percent balances. I thought the new law that went into effect in February stated that payment was to be applied to the highest rates first. This didn't happen. Do I have any recourse? -- Jeff

Answer for the expert

Dear Jeff,
I am glad you wrote. You are among many thousands of credit card users who anticipated receiving their April credit card statements to review how payments were applied. I know of many like you who were disappointed, to say the least, in the results. Let's review the provision of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) that pertains to how payments are applied to balances by the card issuer.

Section 104 Application of Payments is the section of the act that covers the new rule for payments. The section reads as follows:

"IN GENERAL - Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted."

What I believe many people may be forgetting is that only the amount of payment above the minimum payment is included in this new requirement of the CARD Act. So, if your minimum payment was $300, the card issuer was not required by the act to apply any of your payment to the balance on your account with the highest interest rate.

However, if your minimum payment was only $150, then the card issuer would be required by the act to apply the majority of the extra $150 to your 21.99 percent past purchases balance. Because you have three different balances with three different interest rates, the act does allow the card issuer to apply part of your payment that exceeds the minimum payment to your next highest interest rate balance (the 16.99 percent purchases balance).   

If you believe the amount you paid more than your minimum payment was applied incorrectly based on the CARD Act rules, I recommend that you contact your card issuer and let them know your concerns. I work with someone who recently contacted a card issuer with this very concern. She was told (by a supervisor) that the cardholder statements were not yet reflecting the payments correctly, but that the issuer's system showed that the payment had been applied correctly to her highest interest rate balance. She will be watching her next statement carefully to assure that this is correct.

It could be that your card issuer may have a reasonable explanation for why your payment was not applied on your statement as the CARD Act requires. You may need to ask to speak to a supervisor if the customer service representative is not helpful in resolving the issue. If, after your conversation with your card issuer, you believe that the card issuer is not in compliance with the CARD Act, you can find out where to file a complaint at the Board of Governors of the Federal Reserve System.

Take care of your credit!

See related: A guide to the Credit CARD Act of 2009, Credit card reform arrives in the form of the Credit CARD Act, CARD Act prevents sudden rate hikes, not annual fees

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Updated: 03-24-2019