How "Bill Me Later" employs Deceptive Accounting to Charge Usurious Interest Rates

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When you redefine the word 'Purchase' to mean accumulative Purchases. Then you effectively increase the probability of default and can collect interest on debt that was already paid.

I have unfortunately become a victim of "Bill Me Later"'s deceptive accounting practices.

BillMeLater.com is a company that was acquired by eBay. eBay and its subsidiary PayPal act in concert to drive payment traffic to BillMeLater. eBay encourages this by allowing BillMeLater.com as a payment option. PayPal makes BillMeLater as the default funding source option when you link both accounts (actually for a time it was the only option!). In addition, payments to BillMeLater electronically is done only through Paypal.

What BillMeLater.com provides to consumers is the ability to purchase an item and pay for it sometime in the future. BillMeLater may charge an interest rate for this service, however usually in the disguise of a promotion, they allow 6 months to pay without interest. It looks good on paper, however BillMeLater.com is able to circumvent usury laws by conveniently defining what is meant by a 'purchase'.

If you make several purchases on eBay (or presumably any of the other retailers that make avail of its services) and use BillMeLater as a funding source, then BillMeLater will conveniently consolidate all purchases with in the same month and treat it as if was a single purchase. In other words, if I make separate purchases from OfficeMax, eBay, Overstock and NewEgg all within a month, BillMeLater.com will treat this as a single purchase.

One would think that this would be a harmless accounting method. However, the company exploits this to their financial benefit. The probability that a customer cannot pay the entire month in full is much higher than having to pay each individual purchase in full. Mathematically, if the probability of paying of in full a purchase is P(x), then the probability of paying of n purchases is P(x1)*P(x2)*...P(Xn). So you raise the probability of failure, and to add insult to injury, the company will charge interest on the full amount of all purchases and not any of the individual purchases. The company would have you convinced that you have 6 months to pay for a purchase without penalty when in reality they are aggregating up all your purchases to ensure that you will default on that full monthly payment.

To further ensure a customers possibility of default, BillMeLater does not automatically apply payments to a customers earliest expiring debt. Rather, you can only payoff the debt if it happens two months prior to expiration. The company is deliberately devising mechanisms to ensure a customer default.

Let however explore sections of BillMeLater.com statements and terms and conditions, to see if they are crystal clear with the customer:

Deferred Interest Purchases. From time to time, we may offer Promotional Purchases with a Deferred Interest option. All Purchases subject to the same rate, Deferred Interest terms and Expiration Date will be a single part; at our option, we may consider any Deferred Interest Purchase to be a separate part, or may consider Deferred Interest Purchases from different Merchants to be different parts. If you pay the balance on the Deferred Interest part (which is called the "Deferred Interest Balance") in full by the Expiration Date, we will not charge any interest for that part. We will calculate the interest for each Billing Cycle prior to the Expiration Date and disclose it on the Billing Statement as the Accrued Deferred Interest. If you do not pay the balance on a Deferred Interest part of the Account before the Expiration Date, we may charge your Account, in the Billing Cycle in which the Expiration Date occurs, interest on each Promotional Purchase from the date of the Purchase (each "transaction date").

Notice the wording starting with "from time to time". In short, the 'bill me later' feature gets turned on and off, to the unsuspecting customer. A customer is kept off balance as to weather something has zero interest or not.

The company uses this term called 'Deferred Interest Purchases' and at their own option may choose to treat multiple purchases as a single purchase even if it is done at a different merchant or time (Notice the wording in the document were they choose to obfuscate its meaning). Isn't the common notion of a purchase as something that is performed one at a time with with a single merchant? BillMeLater.com is deviously defining the word 'Purchase' as to mean something that is consolidated during a monthly period.

Now let's look at the wording in each monthly statement:

You must pay your deferred interest balance in full by the expiration date above to avoid paying accrued deferred interest charges.

Which does sound quite normal, until you find out that they calculate the accrued deferred interest against the accumulated monthly purchases and not the remaining balance.

Finally, this quote from the terms and conditions:

Paying Interest... if you pay the entire balance by the due date each month. We will charge interest on a Deferred Interest Purchase from its transaction date.

In otherwords, the company will charge you interest from the time of purchase. Which sounds fair, until you realize how they've re-defined the word 'Purchase'. Now, notice the inconsistency, it assumes a single transaction date (i.e. its transaction date"), when in reality it is multiple transaction dates. To make even more misleading, the company treats each purchase as a separate entity when you do apply for credit by requesting your agreement on every purchase and requiring each to be a minimum of $99. This dual definition is used only when the appropriate definition benefits the company and not the customer.

BillMeLater is counting on ambiguous terms and definitions to circumvent regulator scrutiny. However, in application of their rules, then employ interpretations that maximize their profits.

So in my specific scenario, I made 12 different purchases totaling $2,200 worth of stuff in March. 6 months later, I pay $2,000 of the balance with a remaining $200. Hoping to avoid accrued interest charges on the majority of the balance. Now I am expecting possible a 19.99% APR on $200, which should amount to $20 in interest charges. However, to my surpirse I am charged $220 in interest! Consider that is over a 6 month period. In short, BillMeLater has charged me a usurious rate of over 200% APR! How is this not in violation of the Credit Card Act of 2009? The 200% APR interest rate is illegal, furthermore if it were not an interest rate then it can be considered a fee for default, which also is illegal.

Without a doubt, usurious and deceptive. BillMeLater.com is banking on the probability that you cannot pay a accumulated balance in full as compared to individual purchases. They have conveniently redefined what is meant by accrued interest on remaining balance. Finally, they've redefined the meaning of the word 'purchase'. All this to increase the likelihood of customer default.

I reviewed other complaints about this company from previous years, and it appears that the company continues to shift to use different tactics to deceive its customer base. In fact, the entire structure of the business is in fact shady, by employing banks to circumvent usury laws and then taking over the loan within days:

Bill Me Later's Shell Game

Which is an interesting arbitrage position that they've taken up. Essentially BillMeLater is exposed by acquiring the loan of the customer. The acquisition has a cost of a lower interest rate than that a customer may potentially pay. That is the difference between 19.99% APR and possibly the 6 month LIBOR rate (.62%). Quite a huge market up, but it assumes the customer defaults. The big risk however is if BillMeLater loses a class action law suit and have to pay back the exorbitant fees it has billed its customers.

So I've filled my complaint with the Consumer Financial Protection Bureau. Let's see how this newly created agency performs. Meanwhile, I hope this post goes viral!

Folks, do me a favor, give these folks a call. BillMeLater.com can be contacted by phone at 1(866) 528-3733 9am to 11pm EST. Keep on pressing zero to reach a live agent! If they can't treat their customers fairly, then they deserve to spend alot more on customer service.

Also, the company makes a big effort in hiding their actual location. You will not find it in their website. However I have dug up their real address :