"Trailing Interest" Snags Bank Of America Customers

Paid in full? Doesn't matter. You may still be charged "trailing interest"

The world's No. 2 bank is at it again, this time by embracing an innovative form of late charges on credit card balances that can leave customers in debt even if they've paid their balance in full.

Joe of Clarks Summit, Penn., wrote in to tell us about what happened when he paid off a balance on his credit card in full.

"Even if you pay your BoA card in full, you next statement will contain an interest charge - even if you made no further purchases," he said.

"They call it trailing interest. Their explanation: they now charge interest for each day after your accounting period ended and until your payment is received. So if you wait till near the due date to pay your BoA credit car bill you get whacked harder."

In other words, even if you pay off your complete balance in full, if you don't pay it off by a specific date, you accrue interest on that old balance. So you can pay off a bill, think it's done, then find out you still have interest from a balance two months old.

Writer and businessman Michael Phillips, who once compiled a history of MasterCard, had a similar experience when he received his bill for his Visa card in September 2005. The statement was for $1,241.93.

"I am a terrible customer, I have always paid my bills in full and on time," he said. "This time I decided to see what happened if I only paid $1000. What would the interest charges on $241.93 be?"

Philips was socked with a bill for $970.68, including a $16.44 finance charge. He calculated that he was being charged interest on the average balance of his prior balance, which was $1,241.93.

"That means two things," he wrote. "First, I am being charged interest on a month for which there is no prior outstanding loan balance. I paid it off on time with interest. Now I am being charged interest on a period for which there was no borrowing.

"Second, adding the new $7.31 interest charge to the prior interest charge of $16.44 we get a total interest I am being charged of $23.75. No other fees are involved but finance charges -- interest," he wrote.

A commenter claiming to be a Bank of America employee wrote in some time later to say that his bank's policy was to charge interest for two months running on accounts that had unpaid balances, even if the balance was fully paid in the first month.

"If you pay in full, the only profit the company makes off you is interchange fees, which doesn't make you a very profitable customer," he said.

Since acquiring Wilmington, DE-based MBNA, the megabank has adopted much of its conquest's worst habits, from charging excessive interest rates over "universal default" to charging late fees at the first opportunity.

Bank of America recently announced it was renewing its partnership with Visa, the world's largest credit card issuer, through 2011.

Bank of America had floated trial balloons that it might dump the Visa brand and use its acquisition of MBNA to build its own credit card network, but in the end chose to stick with a proven way to extract money from consumers.

Although Bank of America customers have little reason to celebrate being squeezed so hard, shareholders are pleased. Today the financial giant reached an all-time high stock price of $54.33 a share.

Bank of America execs are also breathing a sigh of relief after settling a multiyear investigation into charges that the bank was laundering money for shady businesses in Brazil. The bank paid $7.5 million to the state of New York and stated that it had never knowingly enabled criminal activity to take place in its business.

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