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The Credit CARD (Card Accountability Responsibility and Disclosure) Act in the U.S. states that payment amounts made in addition to the minimum payment must be applied to balances carrying the highest APR first.

Does it apply in this situation?

Let's say I've got a credit card with a balance transfer and an amount of purchases carrying interest (from purchases made two months ago), which is causing my account to be considered a revolving account.

I make an on-time payment which covers the purchases from two months ago. After the payment, my account contains a balance transfer of $1000 @ 0% and new purchases made after my last statement in the amount of $100, which carries interest.

If I make a second payment of $100, where should it be applied according to the Credit CARD Act?

I just ran into this scenario with my credit card company, where I made a second payment intending to pay off the new purchases (as they are carrying interest) but it was instead applied to my balance transfer.

The credit card company said they apply payments to the last statement, so since I already paid off all of the purchases listed on the statement, the only balance remaining is the balance transfer. Therefore, if I make a purchase the day after my statement, I must pay interest on that purchase until the next statement is available as there is no way to pay off that purchase early.

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  • Does carrying the balance transfer mean they charge interest on the new purchase with no grace period?
    – user662852
    Commented Jun 14, 2015 at 1:45

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I used to work for a major US-based credit card company (CapitalOne) like 4 or 5 years ago as an outsourced agent.

The way it works (or it used to, I don't think it has changed tho) is if you have a balance transfer segment (even if it's 0% APR), it will cancel what is called "the grace period", during which you won't accrue interest on new purchases if you paid your last statement ending balance in full. Your account is a revolving account, so this does not apply to you.

Acording to the CARD ACT, if you make a payment, the statement's minimum payment will be applied to the segment with the LOWEST APR FIRST, the rest of the payment will be applied to the other segments. That way, you will be paying the segment with the highest APR first, thus paying less interest over time. So, if you paid $100, and your mínimum payment is $25, then you end up paying $75 on your purchases segment.

Now, when you make a balance transfer on your account, it automatically becomes a revolving account, meaning you WILL accrue interest on new purchases. Once the statement is generated you can pay that segment off, not before.

You can call your bank and ask when is your bill generated, make the purchase around 3-4 days before (so it will have time to post to the account) and pay the purchase balance off the next day after it's generated, so you will pay about 2-3 days worth of interest, instead of 20-24.

So, yes. Your Credit Card Company is correct.

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  • The CARD Act does not insist that a payment in the amount of the MRMP minimum required monthly payment (or less) MUST be applied to the portion of the balance with the lowest APR; what it insists is that any amount above the MRMP must be applied to the balance with the highest APR. About any part of the payment that does not exceed the MRMP, the CARD Act is silent. I don't know of any credit card company that does not choose to apply the MRMP to the balance with the lowest APR, but it is not part of the law: an altruistic credit card company could pay off the balance with the highest APR
    – Dilip Sarwate
    Commented Aug 24, 2017 at 22:54
  • ....and pigs could fly.
    – Dilip Sarwate
    Commented Aug 24, 2017 at 22:54
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The credit company is correct, the payments are applied based on the latest statement.

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