Citibank Will Apply Your "No Interest Financing" Payments Anyway It Wants

Reader D has a Worst Company In America-themed success story. D writes:

The information on your website helped me get an error corrected with how Sears/Citibank credited my Sears credit card payments. Since you have Sears and Citibank going against each other today in your “worst company” tournament, I thought you might like to hear my story.

Late in 2006, I purchased a Sears appliance, using their “no payments, no interest for 12 months” plan. Then last December 2007, around the time I was to pay off the remaining balance (apx $500) from the 2006 purchase, I purchased a Sears Kenmore furnace, also with the 12 months no payments, no interest plan. This purchase could not be postponed; it was December, and I had to have a furnace. I asked at the time of purchase, and was assured that my future card payments would first be applied to the older purchase then to the new purchase after the old balance had been paid off.

A few days after my furnace was installed, I made a payment of $1000 on my Sears/Citibank credit card, which should have paid off the entire previous balance, and reduced the new balance on the furnace by about $500. But when I received my next bill, I saw that Citibank had applied only the minimum payment of about $25 to the old balance, charged me $21 in interest on the remaining old balance, and applied the remainder of the $1000 to the new purchase. I called the Citibank 1-800 customer service number, received an immediate acknowledgment that that didn’t look right, but the system wouldn’t let the customer service rep make the correction; I asked for and was connected with a supervisor who told me she couldn’t make the correction and that my “Citibank” agreement allows them apply payments as they seem fit. I asked for her supervisor and was told there was no one higher than her available, but she would set me up with a call back when someone was available. (That call never came.) I hung up and redialed the same 1-800 customer service number, thinking I might get a better response from whoever answered the second time. I got a customer service rep in Puerto Rico, who also acknowledged that the payments didn’t appear to be credited correctly, and he tried to correct the problem, but he too said the system wouldn’t let him do it. Then I used the Citibank CEO contact information from your site, and after a couple of unsuccessful attempts, I got through using the [*] key after accessing the company directory. I was ultimately referred to executive customer service, who politely, professionally told me that my account appeared to have been corrected after all, by the first rude, unhelpful supervisor. She said she would check the following day after the overnight postings, to make sure it was in fact corrected. Then I again got the lecture that Citibank can apply my payment any way they see fit. I’ve since received another bill, which shows that the correction was in fact made.

My problem with all of this:
1. The Sears “12 months no payment, no interest” promo is illusory if payments are applied first to the promo balance rather than the old balance on the account.
2. By applying only the minimum to the old balance each month for the next year, Citibank was set to make a killing off the interest they were charging me on the old balance.

If I didn’t get the payment corrected, I was prepared to pay off the entire balance, rather than pay interest to Citibank. This was a predatory tactic that would have cost me hundreds of dollars, literally, if I didn’t have the means to pay off the card immediately. I sure there are many people who are being victimized by this Citibank/Sears practice.

Ah-ha! As far as the bank is concerned, it can apply your payments whichever way it will benefit it most. Of course, Sears isn’t going to mention that when they sign you up for their “no interest” promotion.

This is the sort of thing that everyone should watch out for when taking advantage of “no interest, no payment” financing from retail stores. Be sure to read the fine print and don’t be afraid to stand up for yourself like reader D.

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Edit Your Comment

  1. dweebster says:

    After reading that story I have “no interest” in dealing with either Sears OR Shittybank.

  2. Jaysyn was banned for: says:

    Double posted article?

  3. dweebster says:

    After reading that story, I have “no interest” in dealing with either Sears OR ShittyBank.

  4. KarmaChameleon says:

    This is standard industry practice, unfortunately, and not just with retail stores; we did the same thing at Chase. The same thing goes for convenience checks and balance transfer offers too. Payments are generally applied in this order: Promo APRs in ascending order of rates, then standard APR balances, then cash advance balances. All the while, interest is racking up at the higher rates.

    Pretty damn sleazy, but that’s just how it is, and it’s right there in that cryptic Cardmember Agreement no one ever reads. Never, ever take advantage of any kind of promotional financing offer if you don’t have a 0 balance on your card.

  5. jblake1 says:

    Front line agents at Citicards (division of citibank that handles the Sears portfolio) are extremely limited in their ability to make “corrections” involving fees on accounts. Requests for credit such as waving a late fees and or adjusting simple finance charges are usually always decided with a press of a button on the desktop. If the system says “approved” you get the credit. If the system says “decline”, then you don’t get the credit.

    It is never advisable to “mix” promotional balances on a Sears card.

  6. tvmitch says:

    I can confirm that Circuit City’s Chase card does the same thing with no-interest plans.

    It also means that if you go and buy a $1000 TV at no interest, then the next day buy a $20 DVD on the card, you’ll pay interest on that $20 DVD until you pay off the $1000 TV.

    I called customer service about the issue of crediting payments to my account once or twice. To their credit, it got fixed. Reps told me in both calls that customers are allowed to call once a year to “custom apply” payments. Their system doesn’t seem to be as broken as Citibank.

  7. youbastid says:

    @dweebster: Yes! Boycott a company for doing what every single other company does!

  8. SkokieGuy says:

    Why isn’t the initial offer fraudulent?

    Based on the cardmember agreement about applying payments, it would seem to me that the offer of interest-free financing would have to include a disclaimer “Available only to account holders without a prior balance”.

    Anyone with a balance cannot take advantage of this offer.

    Auto financing ads (zero percent interest!) typically include a disclaimer, “for well-qualified customers” because most people won’t have good enough credit to qualify.

    Why isn’t Sears obligated to include the same type disclaimer?

    Class action territory?

  9. fostina1 says:

    i just bought a lawn mower on my sears card using this same no payments for 12 months. i have no plans on using this sears card again until this lawn mower is paid off. am i ok to assume i dont have to pay a dime for the next year? i plan on paying it in full with income tax next year.

  10. krunk4ever says:

    @KarmaChameleon: I also believe this is the case. Any payment goes to pay off the debt with the lowest interest and if there’s any remaining, it goes to pay off the debt with the next lowest interest and so on.

    Therefore if you currently have a no-interest charge, all payments would go to pay off that first.

    The only thing wrong in this situation was that the buyer was given misinformation about how his payment will be applied.

  11. qwickone says:

    @SkokieGuy: The offer isn’t fraudulent because you DO receive 0% for x months. However, all CC agreements I’ve read have said they apply payments to the lowest interest first. So this guy gets 0% on the furnace for a whole year, if that’s how long he take to pay it off. It’s the remaining balance that’s getting charged the interest.

  12. qwickone says:

    @fostina1: Even if that’s what it said on the sign, you should read your agreement just to be sure. You never know if something processed incorrectly or if you misunderstood the sign.

  13. mduser says:

    @KarmaChameleon: You nailed it to the wall. I just got a new card from USAA and it’s right there in their agreement that they will apply the payments in the order you cited.

    It’s a good thing that I am locking up my card so that the payments only go to the balance transfer I just made.

  14. AaronC says:

    Yep, I hate the Sears/City bank combo.

    I had a sears card and I tried to make 2 payments in one month. I came across some extra cash so I figured I would lower the amount I had on the card. They refused to post the payment untill the next billing cycle. They told me I could only make one payment a month… Needless to say I Cancelled the card imediately.

  15. KarmaChameleon says:

    @mduser: When I was a CSR at Chase, you wouldn’t believe the number of people that would call in pissed about mysterious finance charges showing up on their bill when they supposedly had a 0% APR promo for X amount of time. Nine times out of ten, they’d opened the account to do a 0% balance transfer, and then used their card at Starbucks or something. Little did they know they’d be paying interest on that asstastic coffee for three years. My best advice to people is just assume your CC is trying to fuck you and behave accordingly. They pretty much are.

  16. SomeoneGNU says:

    This isn’t isolated to Sears/CitiBank. *ALL* credit card companies use the “pay the lowest rate first”. It even says it every month on your statement.

    It sucks that someone gave him the wrong information, but(assuming he asked a store clerk) it’s hardly the horse’s mouth he got the info from. More like the well..the other end.

  17. Blue says:


    SatanBank is more like it.

    How to avoid all this nonsense, Dump all you redit cards, Get an Amex card!

  18. @KarmaChameleon: THIS. I have a Chase card with a transferred balance and NOTHING else. When that’s finished, probably net month, I’m canceling and shredding the card.

  19. TheDunnster says:

    Which is why if you want to best use a zero apr / no payment or any such setup, you need to ONLY put that one purchase on that account… or be ready to transfer to a card that has a zero apr on balance transfers AND not use THAT card.

    If you put ANYTHING other than that one purchase/transfer, they WILL put your payment towards the wrong part and hit you up for the interest.

  20. @SomeoneGNU: You’re right it’s standard practice. I bank with USAA, the best bank in the world, and this is what they say on the statement: “We may apply payments and credits in any order we deem appropriate.” They further elaborate on their current practice:

    1. Finance charges… and other charges and fees…
    2. Promotional-rate balances on your most recent statement
    3. Other balances on your most recent statement
    4. New promotional-rate balances that posted after your most recent statement
    5. Any remaining balances that are not subject to a promotional APR

    Of course, if you have multiple promotional rates, #2 is intentionally vague. Some interrogation of the CSR revealed that they apply payments to lowest-rate balance first. Anything with a regular, purchase APR isn’t going to get paid until all of the promotional rate balances are paid off.

    This is why I have 5 credit cards.

  21. marike says:

    I can confirm that Bill Me Later will pay off anything accruing interest first, and if nothing is accruing interest (e.g. no-interest/no-payment promos which are everywhere), they start by applying payments to the purchase amount of the promo that will expire first. I do it all the time and it applies the payments correctly.

    Consumerist may hate on Bill Me Later every so often, but at least they apply payments the way it makes sense (to me).

  22. starrion says:

    In other words: If you have a 0% option running- don’t use that card again. Put it in a drawer and make sure it doesn’t leave.

    Use a different card for purchases and pay it off every month.

    If you need a major purchase- open a new 0%, or use your purchase card and shift the balance to a new 0% as time allows.

    @KarmaChameleon: THIS x 2. The best revenge is to know the terms and use them accordingly.

  23. mduser says:

    @Michael Belisle: Thanks for putting that up, and this is why my recurring charges are still staying on the old card with another bank. I can pay those off monthly, and then use the rest of the money on USAA.

  24. econobiker says:

    Yup, this is one of the typical deals for credit cards. I don’t even think it is in the fine print anymore- most card advertisements I have gotten recently do state this on their terms and conditions on the back side of the fun letter and application…

    That is why, if you really need to use a credit card, you should have an active card and a debt pay off card.

  25. alice_bunnie says:

    I had a similar thing happen with a Circuit City card, only I HAD paid the full balance due, only I didn’t realize that I had to wait until the next billing period. I only use the Circuit City card for promotional things like that.

    I also have a Bank of America card that I only use for their 0% balance transfers they offer me at the beginning of every year. They just sent me a notice that they’d up my credit limit. Only thing is I can’t use it until next year because it’d mess up my repayment schedule.

  26. Xerloq says:

    Don’t most banks do this? I’ve read every single paragraph of my cardmember agreements (before signing up) and this seems to be a pretty universal occurance.

  27. SOhp101 says:

    Like someone else said, this is standard credit card promo rate practice. It says so right in the terms and agreements.

  28. Scatter says:

    Home Depot offers the same kind of promotions and pulls the same stunts.

  29. says:

    We had something similar with a Circuit City card (either Citibank or Chase, I don’t recall) several years ago. We bought a new computer; while we had the money needed to buy it, we let ourselves be talked into the no-interest-financing offered, to simplify our future budget.

    We also bought an accessory (ethernet cable) and put both items on the shiny new card. I’m sure the idiot salesguy got a bonus for signing us up, in addition to whatever commission he got for making up information to help us decide on a computer. But his sleazy self-interest isn’t the story here…

    Weeks later, the first bill arrives, and there are (correctly) two sections: promotional balance (the computer), and non-promotional balance (the cable). So we pay the full non-promotional balance, plus the minimum payment on the promotional balance.

    Next month, the bill has all sorts of late fees and interest on the non-promotional balance. They had applied the entire payment to the promotional part of the account, and nothing to the rest. So I read through ALL the fine print, then called customer service.

    When I request that the payments be adjusted, the CSR replies that the agreement specifically states that payments will be applied to the promotional balance before they will be applied to other purchases. I ask her what section that’s in, because I didn’t see it. She says she does not have a copy, but it’s in there. I tell her I read it through before calling and couldn’t find anything.

    “Well, It’s in there.”
    “No, it isn’t.”
    “Yes it is.”
    “No, it isn’t.”
    “I’m going to have to put you on hold, ma’am.”
    (In the ten minutes that pass, I naively assumed she was looking for a copy. However, she was giving me a “time out.”)

    When she returned, I asked if it would be possible for her to get a copy to look at with me. She offered to send ME one. (“No, thank you, I’m looking at mine right now. But I think it would help if you could read it too?”) I ended up reading THE ENTIRE CUSTOMER SERVICE AGREEMENT to her. And after 45 minutes of that, she admitted there wasn’t anything that said payments would be applied to the promotional balance before other balances, and removed the interest and overdue charges.

    I somehow managed to not yell at any point. I was mellow in 2001 :)

  30. the_wiggle says:

    @KarmaChameleon: & be darned certain you use that card for *nothing* else until that promo’s paid in full. working in call centers the last few years the number of ignorant & irate callers on this matter has been unbelievable.

  31. ConsumerAdvocacy1010 says:

    WHY is this on Consumerist? Credit Card companies have been doing this for years. Blame the OP!


  32. SomeoneGNU says:


    I wouldn’t say the majority of people are blaming the submitter rather I would like to think people are rolling their eyes saying, “Duh”. Obviously the practice is very much in the favour of the credit card company but it’s hardly hidden. To me, at least, I always thought this was common sense and something an educated consumer should know.

    Really the best advice I’ve seen is @this. In fact, not only lock it in the drawer, but make your monthly payments so you pay it off a two months in advance. For example, my wife and I had 18-months no interest on a HDTV, and planned to have it paid off in 16. It kept our payments low, and our interest zero.

  33. azntg says:

    This is something I usually warn about to other people posting similar stories (or potential scenarios) at the CR and CB forums.

    Taking advantage of 0% financing just doesn’t make sense if you have a prior balance or if plan to make purchases on the same card before the financed item is paid off.

  34. nacio says:

    citibank rocks… you just can’t buy things.

  35. Rachacha says:

    @fostina1: In theory you are correct, but to qualify, you may need to make minimum payments to keep your account in good standing, or they can cancel the promotional APR and charge you some horrendus rate. Read all of the documentation wit your account, and contact customer service to get confirmation on your understanding of the payment requirements. Also plan on paying off the balance at least 1 month before the date final payment is due to avoid any “processing delays” or confusion of “No interest until April 2009″…does that mean April 1, April 30, or the date of your billing cycle?

  36. jgpenzen says:

    first, i would like to be one of the many people who read that article and said:


    second, i had the same thing with citibank and a local furniture retailer, i countered it by writing two checks every month and detailing in the memo section which promotional balance each check was for, it worked most months but every so often both checks would be applied to the same balance and i had to call to have it corrected

    even though they have the right to apply payments to balances in any way they see fit, most companies (the dreaded citibank included) will actually do this if you ask

  37. KarmaChameleon says:

    @ConsumerAdvocacy1010: I’m not trying to blame the consumer, really. Whenever I see posts like this on here, I always jump in and try to correct a misperception or educate folks. I know from experience that a lot of things are standard knowledge to some people, but not for a lot of others, especially WRT credit cards. So I try to help where I can. Call it penance. :P

  38. XianZhuXuande says:

    Be careful, guys, this disclaimer can be found in almost every single credit card agreement. They will apply your payments to the area which is most profitable for them. This may mean overlapping no-interest promotions or forever paying interest on the small purchase you made while you work hard to pay down your 0% APR balance transfer.

    It is a wretched practice, but it is standard in this nasty industry.

  39. midderpidge says:

    If you have a complaint and are dreading calling the 1-800-labyrinth of customer service or better still, fell they aren’t responding well to your complaint, write the number down and take it with you when you go out. Call that number from a payphone to talk to them about your problem. Put on hold and don’t want to wait? Hang up, go about your business and call from the next payphone. Call often. It will make you feel better to know that each call from the payphone to a 1-800 number costs you nothing and doesn’t tie up your phone. It will make you feel even better knowing that 1-800 call costs the company an extra 25 cents every time, that’s 25 cents that goes to the owner of the pay phone letting you support a local business. Better still it fortifies your resolve knowing that you will get satisfaction, even if you have to call in your complaint 1,000 times.

  40. hegemonyhog says:

    The worst part of this, in my experience, has been the “minimum interest” requirement (Circuit City has this). I purchased an HDTV with no interest until 2009 and then purchased a $29.99 game a couple of weeks later.

    I was charged $1 worth of interest on a $32 purchase each month until the card was paid off. It was an effective 36% rate, give or take, and the minimum amount CC would charge on any interest-bearing purchase.

  41. bonzombiekitty says:

    I thought it was common knowledge that payments are applied in this way. I think every agreement I’ve seen for promotional offers on a variety of credit cards all have said that when making a payment the promotional offers are credited first and the highest interest bearing offers are credited last. They pretty much credit things in ascending order of interest rate.

    Citi keeps sending me an offer for “interest free” balance transfers (they do apply a one time fee that’s a percentage of the transfer) and I’m fairly sure it says right in the agreement that all payments will first be credited towards the balance transfer before being credited towards the normal balance. Chase had sent similar things.

    A good rule of thumb: If there’s some sort of promotional rate on a credit card, don’t charge ANYTHING on that card other than purchases that will utilize the promotional rate.

  42. bonzombiekitty says:

    @fostina1: You will have to pay whatever the minimal payment is, which is probably nothing. Just be sure you pay it off in full before the interest free period is up, or else it will probably suddenly tack on all the interest that you should have paid (most “interest free” promotions work like this).

  43. bonzombiekitty says:

    @AaronC: That’s odd. I know Citi has a limit of how many payments may be posted over the month, but it allows me to make up to 3 payments a month over the interwebs.

  44. Fist-o™ says:

    Does anybody here have a “Fully Funded emergency Fund”? I’m just curious; how many people actually set aside money for stuff like new heaters, car repairs, etc.

  45. says:

    @Fist-o: Not exactly that terminology, but I do keep a couple thousand minimum in a savings account. I know how much a safety margin is critical sometimes after experiencing unemployment.