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How Dodd-Frank Financial Regulation Is Messing Up That Thing Where You Surf Zero-APR Credit Cards This Christmas

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Dodd-Frank financial regulation is the gift that keeps on taking.

If you’re juggling Christmas bills, or soon will be—or maybe trying to take advantage of some great travel reward credit card to see loved ones—you might have to make an unanticipated interest payment if you’re not careful.

Partly owing to Dodd-Frank’s bundle of constraints, the credit-card APRs banks collect are sky high these days, even though everyone else loses money on sub-1% money market and CD accounts thanks to ordinary inflation.

So the promo offers have special appeal to many; for some, it’s deliberate and the only way they use credit cards—as a money management tool.

My own case involved a divorce and its aftermath, a new place to live and rebuild, and coping with tuition expenses for the nosepickers.

Maybe you’ve been there, done that, and bought the T-shirt in this or some other situation you thought “would never happen to me.” If so you know what I mean about the wonders of zero-APR card promotions.

I’m not standing here claiming promo cards are always wise: only that they’re one way of keeping the lid on things sometimes—or of actually doing something really creative. For example, my colleagues John Berlau and Iain Murray have both pointed to instances of folks far smarter than me starting companies with credit cards.

But the Scrooge-y Dodd-Frank law can make it a tad harder to manage your resources as you see fit, detracting from its consumer-protection aura.

If you’re “surfing” zero-APRs, thanks to Dodd-Frank you’ve now got to eject from an “expiring” zero-rate card to a new one by initiating a transfer earlier than you might have wanted. Otherwise you can get slammed with an interest charge on the card you’re paying off—the very thing you meant to avoid.

In that sense Dodd-Frank effectively shortens the 12 or 18 months the promoters actually offered you a bit.

I realized this when I initiated transfer of a few thousand dollars from a United States Senate Federal Credit Union credit line to a promotional zero-rate Visa V +1.38% card.

Several days after initiating a transfer online, I noticed that Citibank still hadn’t transferred the cash and paid off the credit union balance—on which a payment was coming due. So I went to their website to see what was going on, and saw this pop-up advisory:

As a new customer, we allow at least 14 days from the day your account is approved for you to receive and review your full card agreement and pricing terms before processing any balance transfer offers. This gives you the opportunity to cancel or modify your balance transfer during those 14 days.

Well, no need for that, I had a Citigroup C +2.32%, Inc. relationship already, so I wrote to them online:

Please process the balance transfer to Chase asap from this new citicard #XXXX. No need to hold 14 days.

“Doris” in South Dakota wrote back, pointing twice to government regulation:

Dear Clyde Crews JR.,

As a new customer, we allow at least 14 days for you to receive and review your full card agreement and pricing terms before processing any balance transfer offers. This delay allows Citi to remain in compliant with the Dodd-Frank regulation. This federal regulation states balance transfers cannot be processed until the client has had sufficient time to receive their Card Agreement.

We regret any inconvenience this may have caused.

Your balance transfer … is currently pending and the payment will be sent electronically as soon as we abide with the government regulations.

I tried to appeal to Doris (without paying attention to my spelling, alas):

But Im not a new customer, ive had Citi accounts a long time; and im saying explicitly that i have reviewed the agreement, so you have abided by Dodd-Frank. By not paying off Chase now, its going to cost me another $110 … payment [to the card I’m paying off]. I want to transfer to them now to avoid that.

But Doris’ hands were tied:

Dear Clyde,

It will take at least 14 days after your account is opened to process balance transfer payments. During this time you may cancel or modify your balance transfer request by calling the number on the back of your card.

…We appreciate you for using a Promotional APR offer on your account and hope you enjoy the rest of your day.

Please let us know if we can be of further assistance.

So an unplanned payment came due on the account I was trying to pay off, meanwhile, the promotional period on the new account had begun.

Well, OK, a couple weeks is only a couple weeks, and it wasn’t a huge deal, but then again, multiply things like this across thousands, millions, of customers. Minor regulatory inconveniences can add up to some real cash if people don’t know new rules and have to make unintended payments–or even get a late fee.

Especially given that the whole idea of APR surfing is to keep your money. One can see the banks collectively not exactly hating it when heedless departing customers pay an unexpected toll.

Eventually everyone will catch on; but the nanny state, “nudging,” government-as-helicopter-parent, or whatever we call it, annoys and is potentially costly besides. Unfortunately, this is but one example. Bah, Humbug!