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Refunds on Credit Card

BeckhamsTears 823 347 March 17, 2011 at 08:19 AM
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How do 'returned' items effect the payment due on my credit card?

Example:
My statement from last month was $1,600. I have auto-payments set up from my bank to pay the due amount in full.

In the past week - I've booked flights on Continental and then cancelled them within their 24-hour 'flex' period for full refund. The flights cost $400 and I did it twice.

On my account, these purchases show up for $400 then a couple days later a -$400 (credit) appears.

Today when the payment was withdrawn from my bank, it was only for $800, not the $1,600 I expected. The two $400 credits were applied as 'payments'?

My question - will I be charged any interest because of this?

[Note: I went ahead and submitted an additional $800 payment today to avoid the possibility of paying interest, but I'm curious about how this works. I assumed the full $1,600 would be withdrawn from my account]

If no interest charges would occur, then if someone wanted to - they could purchase then cancel tickets at Continental in order to push out the credit card payment with no interest penalty. (e.g. you're $200 short this month, go to Continental, buy a flight, wait ~23 hrs so it posts to your credit card, then cancel the flight for full refund, get credit on the card -- now payment for this month is reduced by cost of the flight, and you can pay the ticket price next month)

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#2
I have had refund credits occur after statement close date but before the due date. I paid the statement amount less credits and have not been charge interest. The conclusion would be that the credits counted as payments.
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#3
If they were refunded during your "grace period" before interest starts accumulating on that debt then it should be a non-issue. I don't think you can use it as a loop-hole to avoid minimum payments, but I'm not totally sure the system treats it as a deleation of that one item.
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#4
Quote from wes View Post :
If they were refunded during your "grace period" before interest starts accumulating on that debt then it should be a non-issue. I don't think you can use it as a loop-hole to avoid minimum payments, but I'm not totally sure the system treats it as a deleation of that one item.
The refund for the flight was issued about 1 to 2 days after the purchase was posted, so it is withing the 'grace period' of the flight purchase. If the refund counts as 'payment' I don't see why the minimum would be treated differently. Then again I always pay in full - so others may be more familiar than I am with this.

I was just surprised to see refunds counted as payments.
If you could do this regularly you could definitely earn some extra pennies on the float. laugh out loud
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#5
Who issues the credit card - your bank?
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#6
Chase Continental card
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#7
Quote from BeckhamsTears View Post :
Chase Continental card
Is that who you bank with - Chase?
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sorry I didn't understand the query - no I do not bank with Chase
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#9
I don't understand your logic (maybe Continental does flights differently..I have never flown with them so I'm not sure..).

But yes, if you return something onto your credit card..it counts as a "payment", I suppose. Even if the amount is more than the original transaction (Idiots at Blockbuster..bought a game for $50..$40 Amex, $10 via gift card, didn't work, so I returned it...put the full total back on my card..so I don't ever have to spend that $10 at BB ever again..SWEET!). I had a balance during my "grace period" So it was $340 day before...became $290 when the return was posted.

This works for every retailer I know of. So I don't know where you're going with this. Why would you have to pay for something, you didn't keep? Say I wanted to go down to BestBuy tomorrow and buy a $5000 HDTV. If I decide I don't like it or something, and return it, then I would be charged $5000, then a $5000 credit will be issued when I return it. If I had no running balance...then that would mean I would pay nothing either. It is more or less free money for 25 days (or whatever your card's grace period is). That is what a credit card is.

They make the money from the merchants with merchant fees (for example I pay 2.75% of the total cost of what my sale is for every card I accept to VISA/MC, Amex, Discover..most big companies I'm sure pay a lot less than that), and with people who are not financially responsible by carrying a balance and paying interest.

Long story short: That extra $800 you submitted is going to be a negative balance (assuming you do not charge anything next month), or as a credit for you to use (if you only charge $800 next month EXACTLY, then your bill the following month will be $0), or if you charge more than $800 next month then it will show as whatever you spent (let's say $1000) plus the balance you had of $800..so you would only pay a $200 bill next month.

Basically..you didn't need to pay that extra $800...just pay what is due on your creditcard...it's not rocket science. Giving them more than what you owe them means you do not get to collect any interest on that money, and/or it's inaccessible for you to use, except on that card (which for some people, may be an inconvenience).

Have you seriously never returned ANYTHING on your creditcard before?
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Quote from dzap View Post :
But yes, if you return something onto your credit card..it counts as a "payment", I suppose.
Maybe an example will help -
this is effectively what happened
Jan 1 - I bought $1,600 worth of beans from the bean store
Jan 31 - billing cycle closes, I get a bill for $1,600 due on Feb 15
Feb 1 - New billing cycle starts
Feb 3 - I buy 2 flights from Continental for $800 (new bal $2,400)
Feb 4 - I cancel 2 flights, then rebook the same flight for $700, after price drop (new bal $3,100)
Feb 6 - Refund posts as -$800 (new bal $2,300)
Feb 15 - Payment* withdrawn from account for $800 (new bal $1,500) [$800 worth of beans has been 'paid for']
Feb 28 - billing cycle closes, I get a bill for $1,500 due on Mar 15
Mar 1 - New billing cycle starts
Mar 15 - Payment* withdrawn from account for $1,500 (new bal $0) [$800 worth of beans and $700 for flight]

*credit card is instructed to withdraw full amount due from my bank on due date each month

So I've effectively pushed $800 of my payment for beans out to Mar 15 (an extra month) without incurring any interest penalties, instead of paying it on Feb 15. I kept $800 in my interest earning bank account for an additional 30 days, netting myself a few pennies in interest.

My thinking was that the $1,600 due Feb 15 wouldn't change. The $800 purchase and refund would post on the Feb statement and the amount due then would just be $700 for the cheaper tickets. I've returned things in the past (yes) but maybe it didn't fall in the billing cycle the same way and the amount wasn't as large.

If what occurred is the 'standard' - then why not continue to buy flights from Continental let the purchase price post to your card, then cancel the flight within their 24-hour grace period. [buy 2 more flights, Mar 3 then cancel them Mar 4.. buy more Apr 3, cancel Apr 4, etc..] By doing this monthly, you could push out the payment by months (years?) and earn interest in the meantime. The only limit to the amount you could 'float' would be the limit on your card.

Quote from dzap View Post :
Say I wanted to go down to BestBuy tomorrow and buy a $5000 HDTV. If I decide I don't like it or something, and return it, then I would be charged $5000, then a $5000 credit will be issued when I return it.
But would the $5000 credit pay off your amount due from last month and then you have a $5000 due on the next bill, or would it just net $0 on the next bill and not effect any payments?

[I get that in the end, it doesn't matter - the returned item cancels out the purchase and you still have to pay whatever you owed; but if you can put it off without the interest penalty - why not?]
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Quote from BeckhamsTears View Post :
sorry I didn't understand the query - no I do not bank with Chase
Do you have it setup for Chase to automatically draft your account every month for the full amount of your balance?

Quote from BeckhamsTears View Post :
Maybe an example will help -
this is effectively what happened
Jan 1 - I bought $1,600 worth of beans from the bean store
Jan 31 - billing cycle closes, I get a bill for $1,600 due on Feb 15
Feb 1 - New billing cycle starts
Feb 3 - I buy 2 flights from Continental for $800 (new bal $2,400)
Feb 4 - I cancel 2 flights, then rebook the same flight for $700, after price drop (new bal $3,100)
Feb 6 - Refund posts as -$800 (new bal $2,300)
Feb 15 - Payment* withdrawn from account for $800 (new bal $1,500) [$800 worth of beans has been 'paid for']
Feb 28 - billing cycle closes, I get a bill for $1,500 due on Mar 15
Mar 1 - New billing cycle starts
Mar 15 - Payment* withdrawn from account for $1,500 (new bal $0) [$800 worth of beans and $700 for flight]

*credit card is instructed to withdraw full amount due from my bank on due date each month

So I've effectively pushed $800 of my payment for beans out to Mar 15 (an extra month) without incurring any interest penalties, instead of paying it on Feb 15. I kept $800 in my interest earning bank account for an additional 30 days, netting myself a few pennies in interest.

My thinking was that the $1,600 due Feb 15 wouldn't change. The $800 purchase and refund would post on the Feb statement and the amount due then would just be $700 for the cheaper tickets. I've returned things in the past (yes) but maybe it didn't fall in the billing cycle the same way and the amount wasn't as large.

If what occurred is the 'standard' - then why not continue to buy flights from Continental let the purchase price post to your card, then cancel the flight within their 24-hour grace period. [buy 2 more flights, Mar 3 then cancel them Mar 4.. buy more Apr 3, cancel Apr 4, etc..] By doing this monthly, you could push out the payment by months (years?) and earn interest in the meantime. The only limit to the amount you could 'float' would be the limit on your card.



But would the $5000 credit pay off your amount due from last month and then you have a $5000 due on the next bill, or would it just net $0 on the next bill and not effect any payments?

[I get that in the end, it doesn't matter - the returned item cancels out the purchase and you still have to pay whatever you owed; but if you can put it off without the interest penalty - why not?]
All you use your card for is to buy beans? Smilie
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Last edited by Brian1 March 18, 2011 at 03:10 PM. Reason: Automerged Doublepost
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#12
Quote from Brian1 View Post :
Do you have it setup for Chase to automatically draft your account every month for the full amount of your balance?
Yes - withdraws full amount due on due date automatically.

Quote from Brian1 View Post :
All you use your card for is to buy beans? Smilie
Beans and Continental flights - you'd better hope you're not seated next to me! Bigeye
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Quote from BeckhamsTears View Post :
Yes - withdraws full amount due on due date automatically.
No way dude - you've got to shut that down TODAY. NEVER, NEVER, NEVER, NOT EVER let ANY company draft your account for ANYTHING (except to another one of your own accounts, i.e. checking to savings or savings to Roth IRA).
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#14
See I had a long post explaining how your situation worked out..then I read it again..and then backed out. Because now I'm not sure...because now I'm thinking this SHOULDN'T happen after re-analyzing it, since you are right..you could technically float money for an eternity if this was possible.

My primary understanding of WHY they retroactively apply credits like this is because your balance due (money owed/old money) is priority before any new money is charged and because some merchants may only apply refunds after your billing cycle ends..so this may be a "courtesy" type situation so you don't incur interest charges. So now I'm going to have to try this on my card with a small purchase during my grace period just to see what happens.

What should happen is
E.g. $100, end of billing statement-Pay amount due by March 15th.
New charge of $100...total balance on card of $200
Returned item-Credit issued of $100.

This would still mean you owe the original $100 on your bill for the prior billing cycle. IT SHOULD NOT apply this credit to your prior bill, making it $0 owed, and then the $100 you have in new money is carried to the next billing cycle. But then you have other scenarios where it's hard for the company to differentiate between this..and well..I really cannot answer this.

It made sense to me before that any credits would be applied during that billing cycle since it's priority to have any money owed paid down first, but then this rises the question of something in your scenario..that you could essentially "float" imaginary money to the prior billing cycle and do this for an eternity essentially.

I am trying to figure out the loophole in this, or if this was just a one-time occurrence or maybe this is industry standard..in which case, I'm sure I'm not looking at something at the current moment on why this would work, the way you described.
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Quote from Brian1 View Post :
No way dude - you've got to shut that down TODAY. NEVER, NEVER, NEVER, NOT EVER let ANY company draft your account for ANYTHING (except to another one of your own accounts, i.e. checking to savings or savings to Roth IRA).
(curious) Why?
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