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There are two asterisks following the part of the ad for Bassett Furnture that reads No Interest Until 2013! as published in the August 6, 2011 issue of the San Jose Mercury News.

The footnote says this offer is good "on purchase of $1499" and notes that if the promotional balance is not paid in full within 17 months, interest at the rate of 28.99% will be charged from the purchase date. This also happens if you're late with any payment.

Under regulations issued by the Office of Thrift Supervision, such offers must require minimum monthly payments covering at least 1 percent of the outstanding balance in addition to any interest and finance charges.

As an example of how this would work, it a customer makes a purchase for $1499, the minimum monthly payment for the first month would be 3.5% of the balance, or $52.50. This minimum monthly payment would be reduced very slightly, each month. Over the course of the first 16 months, the average minimum monthly payment would be about $48, for a total of $768. The remaining outstanding balance could be paid off in the 17th month for only $731.

However, if only the minimum balance were paid off in the 17th month, the $768 in payment would have only reduced the outstanding balance from the original $1499 by about $220, leaving close to $1300 to be repaid.

If the minimum payments were instead set to just $90, then that would have paid off the balance in full within the 17-month period. Of course, that would take all the profit out of it for the GE Money Bank.

In the end, the question is whether customers are better off with or without this deal. Those who have a good comprehension of this deal and make sure to pay it off within the 17-month period will be better off than they would be if they used financing terms that didn't provide for a no-interest provision. But those who don't understand this would probably have shopped around for a lower interest rate and/or might have tried to pay off this high-interest financing more quickly. That's what makes it reasonable to label no-interest promotions like this one as abusive.

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Revision r1.1 - 07 Aug 2011 - 00:19 by EliMantel web search for EliMantel
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