It Could Happen To You

I just made a series of slightly expensive mistakes with online banking and credit that I thought I'd share with you.

Had I not caught it on time, it could have been a lot more expensive. And it had nothing to do with fraud.

It started when I made an online purchase. I needed to type in a credit card number and expiration date to complete my purchase so I took my Visa out of my wallet and typed in the information. Then, somehow, the card must have slipped behind the desk because when I went to use the card a few days later, I discovered it was missing.

When I couldn't find it, I called the credit card company, cancelled the card and ordered a new one. A week later I found the old card when cleaning my office but it had already been cancelled and replaced.

Several weeks later, I got a letter in the mail from the card issuer informing me that my payment was past due and that I had a high balance and owed both a late charge and a hefty amount of interest. While the balance on the bill was high, the charges were all legitimate: business travel, car repair, my son's college tuition and other purchases.

Normally, however, I have no interest or late charges because I use an online billing service to automatically pay the full balance each month. The service doesn't just pay bills - it also receives them from your vendors and, based on rules you set, it can automatically pay the full balance, the minimum due or any other amount.

I have the bill-paying service set up to pay the full balance but when the bank replaced my lost card, it changed the account number so the service no longer got the bills. What's more, there were some companies – like my cell phone and internet phone providers – that I had on autopay through that credit card, and it couldn't credit my account until I informed them of the new card.

When I realized what happened, I called the credit card company to explain why I was late and – without my asking – the representative credited back the late fee and informed me that they hadn't dinged my credit rating. Of course I was on the hook for the interest on the big balance my account was now carrying.

Lessons #1 and 2. If you use an autopay or online billing services, be sure to notify the vendors and services immediately if your credit card number has changed.

But now for the lesson number three: Read the disclosure statements that banks send out with credit cards. Independent of all this, I applied for another credit card that pays 1.4% of my purchases back to a savings account. The card struck me as a good deal, so I applied online and a couple of weeks later, I got the card.

The card came with a disclosure sheet which, frankly, I didn't read. Big mistake.

It also came with an offer that seemed to good to pass up. I could go online to transfer balances from other accounts and pay no interest until September.

That seemed to be the ideal way to take care of that balance on my other card so I went online and made the transfer. As I clicked on screens at the new card issuer's website, I didn't notice any disclosures about fees or interest – I was quite confident that I was about to beat the system and get an interest free loan for five months.

I didn't need the loan – I just thought I could keep the money in savings and earn interest at the bank's expense. Silly me for thinking I could outsmart a bank.

One good thing about online banking is that you can check charges between statements. When I went to my online account, I was surprised to find a $50 "balance transfer fee."

I didn't recall seeing anything about that fee in the loan offer, so I called the bank to inquire and they informed me that it was disclosed in the papers sent with the card. The customer service supervisor informed me that the bank is not required to disclose the fee at the time of the online transaction and that it was my responsibility to read and understand the documents that came with the card.

He was right of course, but I'm sure I'm far from the only one guilty of not reading those disclosures. The bank apparently isn't breaking the laws of the United States but it is breaking one of the unwritten "rules" of online commerce: disclosure of terms before the user finalizes a transaction. Unfortunately, Internet conventions don't trump U.S. law so I'm on the hook for the interest charges.

Well, that's only the beginning. During my conversation with the customer service person I learned about a more serious gotcha. While the cash advance I borrowed was interest free, any purchases on the card do accrue interest. But usually this only applies if you neglect to pay the balance.

I figured I'd stay ahead of the game by paying off my monthly purchases on time but not paying down the interest fee loan until a couple of weeks before it was due. I already knew that if I was one minute late paying, I'd be on the hook for 21% interest from the day I borrowed the money - which would have been a big chunk of cash.

Unlike many consumers, I wouldn't be caught in that trap. Or so I thought. To avoid that problem, I programmed my online bill-paying service to automatically pay the bill in August so there would be no chance of paying it late. No such luck.

I learned that – at least with this company -- when you pay your bill each month, the bank applies your payment to the loan rather than your purchases.

So, imagine I spent $1,000 a month in purchases and paid the $1,000 promptly each month. Instead of crediting it to the purchases, the bank would reduce the balance of my loan by $1,000 but that wouldn't save me any money because the loan is already interest free during this period. But they would charge me interest on the $1,000 in purchases even though I paid the bill on time.

If I kept charging $1,000 a month I'd be charged interest on $2,000 the next month and so on until, after 5 months, I'd be paying interest on a purchase balance of $5,000. During that period I would have paid hundreds of dollars of interest, outstripping the benefit of the "interest free" loan.

Fortunately, I figured this out before the first bill arrived so I paid off the loan. Now, as long if I pay my bills in full each month, my card will truly be interest free, assuming I don't fall for any of the other credit card traps.

This may all be legal and I'm not making any excuses – I neglected to read the disclosure statement. But is it really proper for major banks – many of which are major public companies – to take advantage of the fact that many of us don't take the time (or in some cases, may not have the capacity) to read, understand and remember those disclosures that come with the card?

All this could have been avoided, if there were a clear disclosure at the time of the online transaction. But then I wouldn't have taken out the loan and the bank would have lost the opportunity to make some extra money. In the meantime, I have some reading to do.