| Feb 14, 2008

Feature Article - February 14, 2008

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Legalese - February 14, 2008 Know the Terms and Conditions of Your Credit CardPeter Graham, Lawyer, Rural Legal ServicesCredit cards are in wide use these days and provide a convenient way to purchase everything from a cup of coffee to a trip to Europe. If the account balance of a credit card is paid in full each month, no interest is payable on the balance. However, if the monthly balance is not paid in full, interest charges can be substantial. Not only are the interest rates higher than many other forms of debt, the cost is affected by the way the interest is calculated. A recent notice from my MasterCard company illustrates the latter point.

The notice included many changes to the Cardholder Agreement. Two involved changes to the calculation of interest.

The first was a change to the payment due date. Currently the payment due date varies but is always a minimum of 21 days from the statement date. This minimum is changing to 17 days from the statement date, meaning the credit is being offered for a shorter period of time. It will be important to pay the account promptly to avoid interest charges.

The second change is more significant in its potential to increase interest charges. Currently, no interest is charged on new purchases (i.e. purchases that have not appeared on any previous account statement) if the entire statement balance is paid by the payment due date. The change involves a second requirement to qualify for no interest being charged on new purchases. In addition to paying the entire statement balance by the due date to avoid interest charges, a card holder must also have paid the entire previous month’s statement balance in full by its payment due date. In other words, interest will be charged for two months following a failure to pay the entire balance on time. This additional interest can be substantial, as interest is charged on all outstanding purchases from the date they are posted to the account.

The point is to keep abreast of the terms and conditions in your Cardholder Agreement to avoid nasty surprises. Keeping up with the changing terms and conditions can be a challenge. The new Cardholder Agreement I received was 20 pages of often dry and technical language. Notwithstanding the challenge, it is worth taking some time to review the terms and conditions to avoid unexpected charges.

Legalese is a column of general information and opinion on legal topics by the lawyers of Rural Legal Services, Box 359, Sharbot Lake, ON, K0H2P0, 613-279-3252, or 1-888-777-8916. This column is not intended to provide legal advice. You should contact a lawyer to determine your legal rights and obligations.

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