As some of you may know, NFCU has a Pay-Ahead Program (but of course only USAA calls it that).
Section 6.b. of NFCU's Credit Card Agreement fine print says:
Minimum Payment Due. Your monthly statement will tell you: the total amount that
you owe us; the minimum payment that you must make; and your payment due date.
Your minimum payment will include any amount past due plus the greater of: (1) 2%
of the new balance or (2) $20.00. If the new balance of your account is less than
$20.00, the minimum payment will be the amount of the new balance.
You may pay the new balance in whole or in part at any time. We will not charge
you a penalty for paying more than the minimum payment. If you pay more than the
minimum payment due, it is possible you may not have a minimum payment due on
your next statement. Interest charges will continue to accumulate even if no
minimum payment is due for the month.
Notice how it conveniently leaves out exactly how much more than the minimum payment due you must pay? I'll be coming back to this. But first, a quick history lesson...
Prior to 2009, many banks had a Pay-Ahead Program. How it worked was that given a $5,000 balance with the minimum payment requirement of 2%, your minimum payment due would be $100 and if you made a payment of $1,200 you would have no payments due for 12 months.
But then came the FDIC's Credit Card Activities Manual which examined what they called Pre-Payment Programs:
Pre-payment programs, or pay-ahead programs, are similar to payment deferral
programs in that they allow the cardholder to skip one or more minimum monthly
payments. However, these programs are targeted to cardholders who make payments
in excess of the minimum monthly payment and entail the application of excess
payment amounts to the next consecutive payment(s). Pre-payment programs vary.
Some allow cardholders a zero minimum payment requirement until the pre-payment
amount is exhausted, while other programs have set time limits. For example, a
bank might only allow a zero minimum monthly payment for one billing cycle,
regardless of whether the excess paid surpasses one minimum monthly payment.
Pre-payment programs in and of themselves might not be problematic, but have the
potential to be counterintuitive to the spirit of the AMG. Similar to payment
deferrals, they interrupt the payment stream and diminish management's ability
to monitor performance and promptly identify problem accounts. Consideration of
the impact of these types of programs in any amortization analyses the bank
conducts may be helpful. Examiners should look for evidence that corroborates
that before management implements pre-payment programs (or continues offering
such programs) it carefully looks at the customer base to determine whether
these types of programs are appropriate for the card program offered.
Well-structured programs generally only offer the option to the most
credit-worthy customers and are subject to clear guidelines, including
identifying the maximum number of payments that can be skipped and monitoring
Perhaps in light of the FDIC's view on problematic pre-payment programs, most banks either removed the option or changed their policy. NFCU belonged to the latter. In fact, sometime in the middle of 2008, they changed their policy to limit the number of months you can pay ahead to one.
Fast forward to today, NFCU's Customer Service Representatives in general are known to say that the criteria for triggering the Pay-Ahead Program is by making a large enough payment to cover two months worth of minimum payments. But when it comes to Customer Service Representatives, trust but verify.
Since the Credit Card Agreement fine print never defines this amount I did my own due diligence and my findings are as follows:
1.0 x Minimum Payment = Payment Due
2.0 x Minimum Payment = Payment Due
2.1 x Minimum Payment = ?
2.2 x Minimum Payment = ?
2.3 x Minimum Payment = ?
2.4 x Minimum Payment = Payment Optional but Interest Accrues
2.5 x Minimum Payment = Payment Optional but Interest Accrues
2.6 x Minimum Payment = Payment Optional but Interest Accrues
2.7 x Minimum Payment = Payment Optional but Interest Accrues
2.8 x Minimum Payment = Payment Optional but Interest Accrues
2.9 x Minimum Payment = Payment Optional but Interest Accrues
3.0 x Minimum Payment = Payment Optional but Interest Accrues
Notice how doubling the minimum payment still resulted in a payment due? That's when I tripled the minimum payment then started playing a game of Guess the Number. However, I couldn't complete my testing because I kept paying off my balances.
But given the previous example, consider this:
1.0 x Minimum Payment x 12 Months = $1,200
2.0 x Minimum Payment x 06 Months = $1,200
There is no change in the total amount of payments for 12 months! What then was the point of the policy change?
Therefore, consider this:
1.0 x Minimum Payment x 12 Months = $1,200
2.0 x Minimum Payment x 06 Months = $1,200
2.4 x Minimum Payment x 06 Months = $1,440
2.5 x Minimum Payment x 06 Months = $1,500
The results show that of the two smallest multiplies known (to me) to trigger the Pay-Ahead Program both result in a higher total amount of payments for 12 months even if you skip every other month and let interest accrue! This is worth a policy change.
I'm hoping enough of you have utilized NFCU's Pay-Ahead Program in order to complete my findings (and maybe even reveal if fractional multipliers matter and/or if multipliers are subject to rounding).
Just for the record, the formula for calculating your multiplier is as follows:
Payment / Minimum Payment Due = Multiplier
Thanks in advance.
Holy Fico thats the most comprehensive account of a Navy featire we know exists but never really knew it was in writing somewhere lol. Thanks for sharing. Ive experienved it, getting a month where minimum is not due but didnt take advantage of. Great feature though. Leave it to a MFer to try and get the science of it down thanks for sharing
Thanks for posting this.
I was always under the impression it was 2X minimum so it's good to know that's not accurate.
I personally don't really like it because it throws me off when I go to check credit cards that have a payment due. It's just one extra step that I have to do going in to actually make sure I made a payment since I can't trust that $0.00 due. I can see where it's useful for some though.
What can I say, curiosity got the better of me.
It does seem that many either love it, hate it or just plain don't understand it.
That's probably why USAA (for one) allows you to opt out:
The Minimum Payment as calculated above is your Regular Minimum Payment. If your Account is eligible for our Pay-Ahead Program and is in good standing, when you pay more than the Regular Minimum Payment, we may, at our option, permit you to skip some or all of your next two Regular Minimum Payments. When this occurs, we continue to calculate your Regular Minimum Payment, however the amount of the minimum payment due displayed on the first page of your bill, on usaa.com, and on our phone systems is reduced by the amount you may skip. The full Regular Minimum Payment amount is always shown in the Important Account Information section of your bill. Remember Finance Charges will continue to accrue in accordance with the Terms of this Agreement. You may opt out of the Pay-Ahead Program at any time by calling us at 1-800-531-USAA(8722).
For the record, I love it.
It's always interesting to discover the various quirks (for lack of a better word) each financial institution has.
That said, due to lack of answers that could complete my findings (possibly visibility related since the thread was moved from the Credit Cards sub-forum even though that's where I found the vast majority of threads pertaining to this topic), I went digging in the past.
Unfortunately, after a dozen or two threads I found exactly one post with enough data to help me calculate a multiplier below 2.4 (and surprise, surprise, it was @Saeren's):
2.38095238 x Minimum Payment = Payment Optional but Interest Accrues
Odds are, though, they probably rounded the multiplier up.
Since my initial post, I have continued my little game of Guess the Number and my updated findings are as follows:
1.00 x Minimum Payment = Payment Due
2.00 x Minimum Payment = Payment Due
2.10 x Minimum Payment = ?
2.20 x Minimum Payment = Payment Optional but Interest Accrues
2.30 x Minimum Payment = Payment Optional but Interest Accrues
2.38 x Minimum Payment = Payment Optional but Interest Accrues (Saeren)
2.40 x Minimum Payment = Payment Optional but Interest Accrues
2.50 x Minimum Payment = Payment Optional but Interest Accrues
2.60 x Minimum Payment = Payment Optional but Interest Accrues
2.70 x Minimum Payment = Payment Optional but Interest Accrues
2.80 x Minimum Payment = Payment Optional but Interest Accrues
2.90 x Minimum Payment = Payment Optional but Interest Accrues
3.00 x Minimum Payment = Payment Optional but Interest Accrues
There is now only "major" multiplier remaining. After that it's time to try more fractional multipliers (and determine if multipliers are subject to rounding rules) but given the state of the world, further data may be a long time coming.
For now a reasonably safe assumption is that a multiplier at or above 2.2x will trigger Navy's (NFCU) Pay-Ahead Program.