In trying to explain the vagaries of how electronic payment transfers work, the banking industry has just made me want to vomit.

Last month, just like every other month, I paid one of my credit card bills using my bank’s online payment service. Since they pay the credit card company — which happens also to be one of the largest banks in the world — via electronic transfer, I scheduled the payment for three days before it was due. Apparently, this was the wrong thing to do, because my credit card company didn’t acknowledge the payment until the day after it was due, and I was assessed a late fee and finance charges. I called, and because I’ve been with them since I hit the age of creditworthiness, the company was happy to refund both charges, but it inspired me to learn a bit more about how the whole process works. This evening, I embarked on that learning process, and found out that it’s just another way for banks to earn money on floating capital, screwing the consumer for the sake of themselves.

For sake of illustration, here’s an example. Say that today, I ask my bank to make an electronic payment to my credit card company on Sunday, February 27th. According to the representative at my bank, payments are transmitted between midnight and 4 AM on either the specified date or on the first business day thereafter; that means that the payment will actually be transmitted on Monday, February 28th between midnight and 4 AM. The rep said that the transfer is instantaneous, and that when it’s done, the money is out of my bank account and in the possession of the receiving institution. This is where disagreement number one pops up: the representative of my credit card company said that they don’t take possession of the money at that time, but rather, that’s the time that my bank sends notice to them to come get the money, and they don’t go collect it until midnight after the notice is received. Therein lies float period number one — if my credit card company is to be believed, there are between 20 and 24 hours that my money is out of my bank account but not yet in my credit card account, time that someone else is earning interest on my money.

Then, the credit card rep told me that they post it to my account “within 24 hours of receiving it.” This provides float period number two — there are up to 24 more hours that the money is in the possession of my credit card company but not yet in my account, so again someone else can earn interest on my funds but not give me the benefit of acknowledging receipt of the money (e.g., avoidance of late fees and finance charges).

My favorite, though, is float period number three, which might be specific to my credit card company. (Remember, though, it’s not just a credit card company, it’s one of the largest banks in the world.) The rep with whom I spoke let slip to me that they do not issue payments on weekends, but do process electronic transfer receipts all weekend, and post the received amounts to accounts on Mondays. That means that the company takes in money all weekend, doesn’t give credit to its customers for that money until Monday, and pays out nothing at all during that period. It just feels dishonest, probably because it is.

As we were ending our (reasonably civil) conversation, the credit card rep told me I’d find that every other credit card company adheres to the same practices. Sadly, she might be right — I’ll likely do a little research here and there over the coming weeks — but if she is, then it would seem to me to be an area ripe for the picking by a company looking to easily pick up customers. (Similar reasons have led to the success of Commerce Bank, after all.)


Sounds like a good reason to start using a credit union.

(The other good reason is the low rates they offer; my wife and I just applied yesterday for a credit card at one of her credit unions, and the rate was below 9%; I don’t think a single other card of mine is below 14%….)

• Posted by: ralph on Feb 15, 2005, 8:45 PM

I see this all the time when I pay my Fleet-now-BankOfAmerica credit card on line. The money disappears from my checking account instantly, but takes a few days to make it to my credit card account. I’ve gotten used (resigned) to it, but I still don’t like it.

PS: I hear that pro wrestling is rigged, too.

• Posted by: twohorses on Feb 15, 2005, 9:16 PM

Check out Blue from American Express. It is a product of Centurion bank. I have initiated electronic payments on the due date several times, and my account has always been treated as if the money was recieved at that time. I think they treat electronic payments like payment commitments. Of course, credit rating and the fact that I am paying from a credit union account may come into play.

• Posted by: Max on Feb 16, 2005, 11:11 AM

The answer is simple: stop using credit cards. Cut them up. Get a debit card for things like shopping online. Don’t buy cars on credit. Pay off the credit cards and never get another. The only payment you should have is your house payment, and if you can pay that off, do it.

• Posted by: Nyx on Feb 16, 2005, 12:43 PM

Uh, Nyx, there’s a big difference between not carrying high-percentage credit card balances and not carrying a low-percentage mortgage. The latter is (a) interest-deductable (a nontrivial consideraton) and (b) at such a low % rate that just about anything else you would do with that money (down to a CD, let alone any investment in a Roth or other retirement account) will earn more for you than you’re paying in interest by keeping that amount loaned. (i.e., it’s better to keep $1000 of loan at 5% if you’re investing the corresponding $1000 at 8% — your assets come out ahead, even before you’ve deducted the interest on the first loan.)

for that matter, if you get interest on your checking account, then it could be a good choice to use a credit card (and pay off the monthly balance, so no interest at all), so that you take money out of your checking account all at once at the end of the month, rather than in dribs and drabs throughout.

it all depends on your own resources and level of discipline. but “just avoid debt at all costs” isn’t necessarily a rational recommendation.

• Posted by: acm on Feb 16, 2005, 2:12 PM

“The road to riches is paved with debt.”
-Trammel Crowe

• Posted by: Charles on Feb 17, 2005, 2:55 PM

I have found the least ‘lag time’ between the paying of and posting of a payment by using the same bank for checking as to have credit card….that way
it is at least in the bank’s interest to post right away. Also, try to pay credit card bills when received, rather than wait to due date. That way interest charged for rest of month is on the new lower balance….every little bit helps! :)

• Posted by: dar on Feb 20, 2005, 6:20 PM
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