What is Double Cycle Billing (and Why Did the CARD Act Ban It?)

Do you know how your credit card interest charges are calculated? Thanks to the CARD Act, they're likely calculated in a very different way than they were just a few years ago under popular double cycle billing methods. And the changes are to your benefit.

Let's take a look at what double cycle billing is, what's so bad about it, and whether or not credit card companies can still get away with it.

What is Double Cycle Billing by Credit Card Companies?

When you think about your credit card interest being calculated, you might know about average daily balances. And you might assume that your interest payment this month is based on your average daily balance last month.

With double cycle billing, that's not true. Instead of calculating your average daily balance to charge interest against from one month, the credit card company uses the average daily balance from the previous two months.

What's Wrong With Double Cycle Billing?

Double cycle billing (or two-cycle billing) essentially penalizes customers by factoring a single charge into interest payments twice. Of course it's factored into the average daily balance the month the charge is made.

But due to the two-month average daily balance calculation, it's counted again the following month, even if that charge has since been paid off. That's right. Your balance can be used to calculate interest twice, even if you already paid it!

How Things Changed With the CARD Act

The CARD Act changed this. Starting in early 2010, credit card companies were banned from using double cycle billing practices to pull higher interest payments out of consumers. According to Victoria Pawelski of the Federal Deposit Insurance Corporation (FDIC), "this new law bans this practice by permitting interest charges to apply only to outstanding balances and not to previous balances already paid."

Did your credit card company ever charge you interest using the double cycle billing method? How much have those interest charges changed since the new law came into effect in 2010? Has your credit card company simply found other ways to increase revenues, such as with new fees? Share your thoughts on double cycle billing and whether or not its ban was a good thing in the comments below.