By Seth Harbison

Chase Card Services, in an effort to “help customers more easily manage their accounts and personal finances and avoid fees,” is ending its practice of two-cycle billing in calculating credit card finance charges and changing to an average daily balance method. In addition, Chase is offering phone, e-mail or text message alerts that can warn customers when their due date is approaching or when they are approaching their credit limits.

Chase and other card companies that use two-cycle billing have been criticized over the practice, which allows them to charge customers on balances that have not existed since the previous month. The average daily balance method calculates finance charges only on credit card balances that exist during the same billing cycle.

In practice, here’s how two-cycle billing can harm cardholders: Say a consumer has carried a balance of $2,100 and then pays off all but $100 of that balance. Then, the following month, the consumer charges nothing. Instead of being charged a finance charge only on the $100 balance, under two-cycle billing, this consumer would be charged based on having held an average balance far above the $100, because the $2,000 from the previous month would be factored in, even though it had long been paid off.

Under the average daily balance method, only the balances held during the current billing cycle are used in calculating finance charges. Using the example above, the same consumer would only be charged interest based on the current $100 balance.

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