On 15 December 2016, Jon, who had a ‘pristine credit score,’ applied for a new credit card. The card offered an interest free period of six months. Jon thought he would use the card for six months before paying off the entire amount as one direct debit.
Jon sent a payment authority to the credit card company, asking that it debit the entire balance from his nominated bank account at the end of the six month period. The card company said it never received this form.
On 19 January 2017, Jon called to confirm that his card and account had been activated. He started using card his card on 30 January and a statement dated 28 February showed a closing balance of $173 with a minimum repayment of $20 due 23 March. The statement Jon received at the end of March showed a closing balance of $865 with a minimum repayment of $45.
Jon failed to realise that while the credit card offered an interest-free period, it did not offer a repayment-free period as well. After two months of no repayments the card company made numerous attempts to contact Jon but couldn’t get in touch with him.
On 26 April, having received no repayments and unable to make contact, the card company cancelled Jon’s card and charged an overdue fee of $25. It continued to issue monthly statements to Jon’s nominated email address and after the 6 month interest-free period had elapsed, the card company charged interest of $15.57.
On 29 August Jon called the credit card company, confused at why his debt had not been paid. Jon thought, given the 6-month period had elapsed, the card company should have withdrawn the necessary funds to pay off his balance.
The card company told Jon that the debt was now with a collection agency and he complained to FSCL.
Credit card company’s view
Although Jon’s offer gave him six months interest-free, it did not waive an obligation to pay minimum monthly amounts as displayed on his monthly statements. When the card company received no monthly payments for some months it cancelled Jon’s card and referred the debt to a collection agency.
The card company had no record of receiving Jon’s debit authorisation form. It had not charged Jon interest for the first 6 months of his contract and was happy to waive the $15 in interest and $25 overdue fee in order to resolve the complaint.
Once Jon had paid the overdue amount, the card company was also prepared to remove the adverse credit listing placed on his record.
Jon believed that conversations he had with customer service representatives when he signed up for the card had led him to believe that no payments at all would be necessary for the first six months.
Jon felt the card company had contributed to the situation because it had received his authority to take all of the money he owed at the end of the interest-free six month period. Jon said that it should have been clear that he was under the impression no monthly payments were necessary.
Jon was happy that he would not have to pay the extra $40 charges but also wanted to know whether he could continue using his credit card after he had made payment. Jon did not believe he should be penalised by losing his credit card and receiving an adverse credit listing because of the card company’s mistake.
In the circumstances we believed the card company’s offer of a debt reduction from $907 to $867 was reasonable. From all the available evidence, it seemed Jon had misunderstood the six month interest-free promotion as a six month payment-free period.
After reviewing the phone calls, we found no evidence that either interest free or payment free periods were discussed. Furthermore, Jon was provided with the card’s terms and conditions and sent monthly statements which showed that minimum monthly repayments were required.
The credit card company was not obliged to re-open Jon’s account or reinstate his credit card. We could not force the credit card company to retain Jon as a customer. Because the company assured us that no adverse credit rating had been made against Jon’s name externally, Jon could freely apply for credit cards with other companies.
We recommended to Jon that he discontinue his complaint and make payment of $867 to the credit card company as soon as possible, which he did.
Key insight for consumers
It is important to ensure that you don’t make assumptions about financial products. It is also important that you read your card account statements carefully and regularly. Without monitoring accounts, you could face costly consequences in the long run.