Caveat Emptor: Chase Promotional Checks

[Anonymous]

There has been a few posts on this subject. If anyone is wondering, What is the catch, here is a summary:

First, Chase routinely sends promotional checks to its CC customers. For many of us, we get them roughly once per month. The reason that they are so aggressive is that make a ton of $$$ from these checks. Here is how it works:

1. You receive, say, 3 checks in the mail.
2. Chase says that you can only use these 3 checks, not 4 or more (like you would a checking account).
3. Chase says that, if you use even just one check, they will kill the 25-day grace-period on your CC, and any purchases that you make using your credit card will generate interest from the instant that the purchases are made.

Let's say that you have a CL on your CC of $5000. What they are hoping for is any of several situations:

1. Your wife, husband, or admin assistant will see the checks, and think, "Oh cool, balance-transfer checks with no interest. I think I will use these to pay the electric bill." This person uses the check, for say, $40, without you realizing that they have done so. If this happens, Chase has got you. The remaining $4960 of your CL becomes toxic from a financial perspective, for those who normally PIF, even at a relatively "low" APR of 12%. If you use the card thenceforth, without clearing balance "in full" (see below), you are paying 12%, always, even if you PIF every month. This happens because you will use the card to give yourself a 12% loan, and if you are on auto-pay, the loan will be outstanding until your cycle comes around. So even though you are PIF every month, the "chunk of money" that you let rest before you PIF is what the 12% is applied to, every month.
2. After realizing what happened with the checks,you might think.."Wow...I better let my account zero-out to get rid of this non-sense". So you decide not to use either of the other two checks,and just let your auto-pay kick-in, to zero-out your account. But, if you have direct-draft to pay another bill, like cable or telephone, your account will never "zero-out", because your auto-pay will be set-up to pay your statement-balance, not your current-balance, a distinction that, until you used the check, was immaterial from a dinged-by-interest point-of-view. [Note that Chase does not allow you to auto-pay the current-balance. They only allow you to auto-pay either the minimum-payment or the statement-balance.] The result is that, under the rules described on the offer letter, your balance never went to zero, so your grace-period will never be restored until you check your balance and pay the current-balance manually. Only when your current-balance shows $0.00 balance will your grace-period be restored.
3. You finally realize what is happening. You say to yourself, "I have to stop this. I am going to zero-out my account." You go online, and see that your balance is exactly $1000. You initiate a payment for $1000. The computer tells you: "Your payment has been scheduled." It's Friday night a 7:00 P.M. in Arizona. Your payment does not post until Monday. In that 3-day window, will you be charged interest? I have received conflicting answers from Chase. One rep in India said no. A supervisor in USA said yes. So let us assume that answer is yes. Then, that 3-day window might costs you 43 cents. The next question is: "Because of this 43 cents, did my balance go to zero on Monday, or not?" The supervisor in the USA said that it did, because, on Monday, balance would still be $1000, because any interest is only applied at specific cycle points. So while your statement will show, say $15.29 on next statement cut, not just for 3-day window, but previous days since last interest application, your balance did go to zero on Monday, thereby restoring your grace-period.

If you are the type of customer who, for whatever reason, cannot PIF on CC or checks, the checks have a tendency to guide you toward assuming max-debt. There are only 3 of them, and you learn rather quickly, that, if you use, say, $187 of your $5000 CL, with three of your checks, that remaining $4813 becomes locked-up, unless you want to take immediate, no-grace-period interest hit on CC. You might call yourself bing smart, and using the the third of your 3 checks to grab the remainder of the $5000, to get access to your full CL, and avoid lock-up, and that is exactly what Chase wants. They want financially-needy customers who are overly optimistic about being able to repay borrowed money within 18 months, not people who do not need the money but will use it to invest and beat the 2% transaction fee over the 18-month grace period. Of the former, many will, indeed, be overly optimistic, max-pull via the checks,  and suddenly find themselves, at the end of 18 months, with a personal loan of a relatively outrageous interest rate.

[Berk]

I don't care what banks I get promo checks from - they go right in the shredder the same day I get them. I'm not a lawyer so I can't begin to understand all the fine print assocated with them. Not even gonna try.

[delaney1]

I think I remember reading there's a way to avoid interest on chase balance transfer checks by using the Blueprint feature on your Chase account. Thankfully Capital one makes it very clear how to avoid interest when using their convenience checks.

[NRB525]

Thanks OP, your description is a Worst Case Scenario for using those checks. Ideally, the cardholder would have control of the checks, but the scenario is plausible. 

On Chase non-cobranded cards (Slate, Freedom, and Sapphires) the Blueprint payment allows you to specify categories of new spend that you want to pay in full, without touching the BT offer at low APR, so on those cards the CL is no longer "toxic"

Generally it is advisable to not use a card with a BT, but there are banks and methods where the card can be used for spend and not pay interest. 

[Anonymous]

["Generally it is advisable to not use a card with a BT, but there are banks and methods where the card can be used for spend and not pay interest."]

The Barclay Ring comes to mind. I think ideally BT are good if its the only acct bal. Banks just want to get you in a trap. As they say, A fool and their money...

[Anonymous]

---

@NRB525 wrote:

Thanks OP, your description is a Worst Case Scenario for using those checks. Ideally, the cardholder would have control of the checks, but the scenario is plausible. 

On Chase non-cobranded cards (Slate, Freedom, and Sapphires) the Blueprint payment allows you to specify categories of new spend that you want to pay in full, without touching the BT offer at low APR, so on those cards the CL is no longer "toxic"

Generally it is advisable to not use a card with a BT, but there are banks and methods where the card can be used for spend and not pay interest. 

---

Yes, but in the case of these particular Chase checks, it does not matter if you PIF on the cards or not. Chase will look at all your sub-accounts, and if it sees a number that is not $0.00 on any sub-account when you make a purchase with a card, it will charge you interest on that purchase, at the card's APR, from the moment that you swipe the card. It will do this even if, at the time of card usage, balances accross all card sub-accounts show $0.00.

I spend roughly $3,000 - $4,000 / month on CC's, PIF. In that case, using a formula from queing theory, my expected "balance" on my card account (I think) would be around $2,000. That means that, if my wife uses even one of these checks, say, to pay toll fee for $14.00, thenceforth, even with my auto-pay currently set at "pay-max-amount", I will be, effectively, paying interest on a personal loan whose principal is $2000. But unlike a normal personal loan, the principal would never subside. It would be "fixed" at $2000, indefinitely, at a 20+% APR. From a lifestyle point-of-view, nothing will have changed. The $14.00 toll fee would become ancient history. I would still use my card to eat-out at restaurants, buy dog food, etc; I would still feel like I am paying all my debts, every month, in full, without needing to carry a balance. But Chase would get $400/year from me, for not paying close attention to what I/wife just did.

[MJ-san]

Same holds true with citi - once you have a promotional balance all purchases are grace-less and incur interest from the trans date.

Barclaycard is about the only card I know that actually spells it out that you can avoid interest by paying $x and they do preserve grace period.

Rule of thumb - if you get a great promo rate, take it but sock drawer that card until it's paid off.

[MJ-san]

oops, CapOne is also one of "the good ones" that tells you how to avoid interest when you have a promo balance.