Missed payments result in increased interest costs for consumer after balance transfer

Ms. J held a credit card with her bank for several years when she learned of a promotional offer that allowed customers to transfer balances from other credit cards to her bank’s credit card at a 0% interest rate for 12 months. She called the bank to ask about this offer and the bank confirmed that it was still available, with a 3% balance transfer fee.

Ms. J accepted the offer and transferred a $14,000 balance from another credit card in late January. However, by mid-March, Ms. J noticed charges on her credit card statement that were higher than she expected. She called the bank to complain that the 0% interest rate on balance transfers had not been honoured. The bank representative explained that a balance transfer fee of over $400, along with purchase interest and an over-limit fee, had been charged to her credit card account. As a goodwill gesture, the representative refunded $100 for the purchase interest and the over-limit fee. During the same call, Ms. J decided to transfer an additional $1,000 balance to her credit card from another card.

Months passed and when Ms. J reviewed her monthly statements for September and October, she was surprised to see that the bank had increased the standard interest rate on her credit card from 21% to 27.99%. This hike resulted in interest charges of over $500 on her transferred balances. She did not understand why interest had been applied to the transferred balances and why the bank had significantly increased her interest rate.

Concerned and confused, Ms. J called her bank to ask about these charges. The bank reviewed her account and explained that she had missed her May and June payments, leading to the forfeiture of the promotional rate on transferred balances and to the increase of the standard interest rate on her credit card. Ms. J felt this was unfair, as she believed she had maintained a good payment history over many years before the two missed payments.

Frustrated by the bank’s decision, she brought her complaint to OBSI.

Interest rates and fees that banks charge is a matter of commercial judgment that is outside of OBSI’s mandate. We do not investigate complaints that are solely about interest rates or make recommendations to change rates or fees. In Ms. J’s case, our investigation focused on whether the bank had properly disclosed the impact of missed payments on her credit card account and if it had followed its own policies and procedures.

During the investigation, we listened the call recordings between Ms. J and her bank. We verified that on her first call about the promotional offer a bank representative had explained the terms and conditions of the balance transfer offer, including that purchases on her credit card would incur the standard interest rate of 21%, and her account needed to remain in good standing to benefit from the 0% interest rate on balance transfers.

We also reviewed the bank’s cardholder agreement and found that it clearly stated that promotional interest rates only apply if the account remained in good standing, and that the promotional rate would revert to the standard rate once the promotional period ended. The agreement also allowed the bank to increase the standard interest rate if payments were late or the credit limit was exceeded.

We concluded that the bank had accurately disclosed the terms and conditions of the balance transfer offer to Ms. J and had followed the terms and conditions of the cardholder agreement. Based on our findings, we had no basis to recommend compensation.