Clarification on payment allocation rule

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In the past two weeks, I’ve received e-mails from several consumers about the manner in which credit card payments are being applied to their accounts. There seems to be confusion  over exactly what the new credit card law allows issuers to do.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 requires card issuers to apply payments above the minimum to the balance with the highest rate first, then to the debt with the next highest rate and so on. Previously, issuers were allowed to apply payments to promotional-rate balances first to maximize profit from interest charges.

The new requirement took effect Feb. 22, 2010.

There are a couple of exceptions to this rule.

  1. When only the minimum amount due is paid. The minimum payment can still be applied to the debt with the lowest interest rate.
  2. If you have a deferred-interest plan. This finance plan (think “no interest for six months!”) means that interest is withheld until the expiration of the promotional period. At that point, the creditor can assess interest back to the date of purchase on the original amount owed as long as some debt remains unpaid at the end of the deferred interest period.

The CARD Act requires that the entire payment above the minimum is first applied to the deferred-interest balance for the last two billing cycles preceding the expiration of the deferred interest period.

Have other CARD Act questions? E-mail them to plastic_rap at

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