Citibank & Double-Cycle Billing

The Fed's proposed credit card reforms in May had me wondering about my own Citibank credit cards. We use our lower-rate card as a revolving line of credit for household expenses, and we use our higher-rate card as a non-revolving line of credit for occasional online purchases.

Occasionally, we will float the balance of the higher-rate card over two cycles before zeroing out the balance. When I would zero out the balance after the second cycle had ended, I was irritated that I had to pay for the daily interest between the time the second cycle ended and the time the payment was posted. Typically, I would not have budgeted for this.

I thought this sounded like double-cycle billing as described in the Fed's proposed credit card reforms (see page 20) and the GAO credit card report (see page 28 or Figure 6 below) cited in the reform proposal.



I began trying to figure this out by referring to my card agreement, and although the calculations were described I could not determine whether or not Citibank's formula was what the Fed was describing as double-cycle billing. So, I decided to call Citibank and ask for clarification. The account representative was quick to transfer me to an account manager. The account manager explained the interest calculations as spanning two cycles, but did not clarify whether or not this was double-cycle billing as I was describing it to her. The account manager was dismissive of me and my inquiry, considering me to be a light-weight crank who had nothing better to do than quibble over interest calculations...which is exactly what I was becoming.

My motive shifted from simply seeking to understand to also seeking redress for being dismissed and not having my questions answered. I signed the Fed's proposed reform, and I wrote an e-mail to Samuel Wang, a spokesperson for Citi who is often quoted in news articles about Citi. In response, I received a letter from Dawn Herr, whose title is Presidential Communications. While the letter satisfied my need for redress, Dawn attempted and failed to explain Citibank's interest calculations using numbers from one of our cards. At this point, I pulled Erin into my confusion and frustration. She has a better head for math than I do and understands interest calculations and tax code on a conceptual level. Erin agreed that the letter was confusing and that the enclosed card agreement (that I started with) was equally unhelpful for answering my question about double-cycle billing.

I realized that the only way I was going to figure this out was with a concrete model. Before experimenting with our own card use and working the numbers in reverse, I decided to make one more call to Citibank. I spoke with an account representative, and I presented the scenario in the model depicted in Figure 6 above. This account representative was extremely patient and walked me through the calculation.

The account representative explained that in the model depicted in Figure 6 I would be charged interest on the $10 unpaid balance from January 10th when the $1000 was originally charged to the end of Cycle 2 AND from the end of Cycle 2 until the payment for Cycle 2 is posted. Meaning that I would not be able to zero out this balance until Cycle 3. This is exactly what I was experiencing with our higher-rate card used most often as a non-revolving line of credit.

So, is this single- or double-cycle billing?

According to the GAO definitions of single- and double-cycle billing depicted in Figure 6, it is neither. Citibank's interest calculation is better than the double-cycle billing model depicted in Figure 6, because you are charged only for the unpaid balance from the date when the purchase was made. However, Citibank's interest calculation is worse than the single-cycle billing model depicted in Figure 6, because you are charged for the unpaid balance back in Cycle 1.

My thought is that because Citibank is reaching back into Cycle 1, this is a form of double-cycle billing, though not as bad as the GAO definition. Erin thinks it's fair and that I should just drop it. And indeed I will.

There are a few conclusions to draw here: a.) someone who is not very good with numbers and has too much time on his hands is tilting at windmills, b.) Citibank could do a better job of explaining their interest calculations with concrete models, c.) the Fed's reforms can potentially protect credit card users from interest rate calculations that are not fair and difficult to understand.

Regardless, my original irritation that led me to this inquiry is remedied by electronic payment on the day the statement is posted.