If you’ve been reading my blogs you know I have little patience for companies in the financial services industry that do things to con people out of their money. There never seems to be an end to how many ideas the banks come up with. If it’s not one con, it’s another.
Here’s a little known scam that affects thousands of Canadians. It has to do with the way your line of credit (LOC) may work.
Not all LOCs work the same way. Most LOCs are credit facilities where you pay interest on the outstanding balance that you used.
Are you aware of the LOC where you pay interest on a balance that you didn’t use?
One of the big five banks does this frequently!
A lot of people have a LOC attached to their chequing account. It works like a big overdraft. If you write a cheque for $500.00 and you only have $200.00 in your account you “slip” into your LOC by $300.00. No big deal. You pay interest on the $300.00 until you make a deposit which puts your account into a positive position. The interest is usually calculated daily and charged monthly.
Now here’s the con this one particular bank uses. They give you a LOC which is tied to your chequing account but they are separate accounts. If you “slip” into your LOC as described above they don’t put $300.00 into your account to cover the shortage, they move $5,000.00 from your LOC to your chequing account and charge you interest until you pay it back by making a deposit sufficient to put your account in a positive position.
Every time you “slip” into your LOC they move another $5,000.00 over. If you “slip” into your LOC by $25.00 they move $5,000.00 over to your chequing. Let’s say this happens on Thursday and you don’t make a deposit until the next Wednesday. They’ve lent you $4,975.00 more than you needed for the week and charged you interest for the privilege.
If you have a line of credit please make sure you understand how it works and make sure you don’t get burned by this scam.