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Credit CARD Act rule applies to store financing

By Leslie McFadden ·
Monday, July 12, 2010
Posted: 2 pm ET

The Credit CARD Act of 2009, which rolled out its biggest batch of rules in February 2010, eliminated a number of anticonsumer practices used by credit card issuers, such as "any time, any reason" rate increases on existing debt.

Among the many provisions in the legislation is a requirement that promotional rates on credit cards last at least six months. An article I read this morning pointed out that this provision also applies to deferred interest plans, those buy-now, pay-later deals offered by furniture stores and other retailers. As of Feb. 22, 2010, stores could no longer offer a "no interest for 90 days" credit card or similar short-term deferred interest plans.

"Retailers and their partner banks can still offer them, but they must be at least six months," Chi Chi Wu, a staff attorney with the National Consumer Law Center, confirmed via e-mail.

Keep this tidbit in mind the next time you go shopping for furniture or a new TV. The retailer doesn't have to offer a deferred interest deal, but if it does, the promotional period must span at least half a year.

If you do sign onto a deferred interest plan, make sure to pay the balance in full during the promotional period. If you still have a balance remaining when the interest-free period ends, interest will be charged retroactively on the full purchase amount.

Have any of your local stores tweaked or dropped their financing offers?

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Leslie McFadden
July 13, 2010 at 2:57 pm

With a deferred interest plan from a retailer, (think "no interest for six months" offers) if a balance remains after the promotional period ends, the full amount of interest would be assessed on the original purchase amount.Using your example, on the thirteenth month, you would be charged an accrued year's worth of interest on the $2,500 balance even though it was paid down to $100 before the deferred-interest period ended. That is, interest charges don't start at the end of the promotional period, but are merely withheld until the end of the promotional period. If you pay the debt in full before the term expires, you won't owe any finance charges.

Debra James
July 13, 2010 at 1:04 pm

Can you please explain a little more how the interest is charged in the event there is still a balance at the end of the promo period? For example, if I bought a washer & dryer for $2500 under an 0% interest for 12 months. I pay $200 per month, and after the 12th month I still have a balance of $100. According to you, "If you still have a balance remaining when the interest-free period ends, interest will be charged retroactively on the full purchase amount." How would that interest be calculated?