If I pay off my credit card balance within the grace period, can the issuer still charge me a finance charge for the previous billing period?

Plain-English summary

Maryland's Commissioner of Consumer Credit asked the Attorney General to resolve an ambiguity in the state's open-end credit law that mattered to how every revolving credit account in Maryland calculated interest. The statute, CL §12-903(d)(1)(i), barred a finance charge on a balance paid in full within 25 days of the end of "a billing period," but the statute did not say clearly which billing period: the one in which the customer actually mailed the payment, or the earlier one the bill covered. Reading it one way meant a credit grantor could still charge interest for the earlier period even though the customer paid on time; reading it the other way meant the grantor would have to rebate that earlier charge once timely payment came in.

The Attorney General concluded that "that billing period" meant the period in which the borrower made full payment, not the period the bill covered. Practically, that meant a credit grantor could include a finance charge already accrued for an earlier billing period in the carried-over balance, and only had to waive a finance charge for the billing period in which the customer actually paid the balance in full within the grace period. The opinion reached this reading by looking at the parallel free-ride provision for new purchases in CL §12-903(d)(1)(ii), the legislative history of the 1983 amendment that added the grace-period language (informally titled the "25 Day Free-Ride Amendment"), and a general canon that statutes should not be read to produce an unreasonable or administratively unworkable result.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Does paying a credit card balance in full within the grace period wipe out interest charges from an earlier month?
No, according to this opinion. The Attorney General concluded the 25-day grace period in CL §12-903(d)(1)(i) only bars a finance charge for the billing period in which the borrower actually pays the balance in full; it does not require the credit grantor to rebate a finance charge that was properly assessed for an earlier billing period.

Why did the specific billing period matter so much to how the statute was read?
Because the two possible readings produced very different results for credit grantors. Under the reading the opinion adopted, a grantor could carry forward and charge interest on an unpaid balance from an earlier period while still giving the customer a genuine 25-day window to pay the current period's balance interest-free. Under the alternative reading, a grantor would have to rebate finance charges already billed once the customer paid within the grace period, a result the opinion found administratively cumbersome and inconsistent with the statute's purpose.

Background and statutory framework

CL §12-903(d)(1)(i), part of the Commercial Law Article's open-end credit provisions, was enacted by Chapter 143 (Senate Bill 591), Laws of Maryland 1983, informally called the "25 Day Free-Ride Amendment." It barred a finance charge or interest on an outstanding purchase balance "paid in full within 25 days after the end of a billing period," but the ambiguous phrase "that billing period" could refer either to the period the bill covered or to the later period in which the customer actually paid.

The opinion resolved the ambiguity by comparing the provision to its companion, CL §12-903(d)(1)(ii), which uses parallel language to give new purchases a 25-day interest-free window measured from the purchase date to the end of the billing period in which the purchase was made, and to CL §12-506(c) and (d)'s similar use of "billing cycle" in the Retail Credit Account Law. Reading "that billing period" to mean the period of actual payment kept the grace-period language consistent across these related provisions. The opinion also invoked the general canon against statutory constructions that produce unreasonable or administratively unworkable results, citing Hoffman v. Key Federal Savings and Loan Ass'n, and relied on the Court of Appeals' recently decided Kaczorowski v. Mayor and City Council of Baltimore for the proposition that legislative history and a bill's title may be considered in construing ambiguous statutory language.

Citations

Statutes:

• CL §12-903(d)(1)(i) (25-day grace period before a finance charge may be assessed)
• CL §12-903(d)(1)(ii) (parallel free-ride period for new purchase obligations)
• CL §12-905 (annual and transactional charges considered by the Legislature alongside the grace period)
• CL §12-506(c) and (d) (parallel "billing cycle" usage in the Retail Credit Account Law)
• Chapter 143 (Senate Bill 591), Laws of Maryland 1983 (enacting the grace-period language, the "25 Day Free-Ride Amendment")

Cases:

• Hoffman v. Key Federal Savings and Loan Ass'n, 286 Md. 28 (1979)
• Kaczorowski v. Mayor and City Council of Baltimore, 309 Md. 505 (1987)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1987/Volume72_1987.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

CREDIT REGULATION

Open-end Credit Plan—Finance Charges—Limitation on Assessment of finance Charge on Outstanding Balance Applies to Billing Period in Which Borrower Makes Full Payment.

July 2, 1987

The Honorable Alan T. Fell
Commissioner of Consumer Credit

You have requested our opinion concerning §12-903(d)(1)(i) of the Commercial Law Article (“CL” Article), which limits assessment of a finance charge or interest on outstanding purchase charge obligations under an open-end credit plan. Specifically, CL §12-903(d)(1)(i) prohibits assessment of a finance charge or interest if an outstanding balance is paid within 25 days of the end of a billing period. Your question is whether this prohibition concerns the billing period in which the borrower made full payment or the billing period for which the bill was sent. For the reasons stated below, we conclude that the prohibition in CL §12-903(d)(1)(i) applies to the billing period in which the borrower made full payment.

I
Statutory Language

CL §12-903(d)(1)(i) provides as follows: “If the outstanding balance of purchase obligations under an open-end credit plan is paid in full within 25 days after the end of a billing period, a finance charge or interest may not be imposed on a consumer borrower with respect to such balance for that billing period

The issue centers on the last phrase in the subparagraph, “for that billing period.” If “that billing period” refers to the billing period in which the borrower makes full payment, the credit grantor may not assess a finance charge on the carry-over bal- ance or any new purchase obligations incurred after the billing date.1 If, on the other hand, “that billing period” refers to the period for which the bill was sent—that is, the billing period preceding the billing date—and the borrower makes full payment within 25 days after the end of that period, a credit grantor would have to rebate the prior billing period’s finance charges but could assess finance charges for the billing period in which payment was made. For example, suppose that a borrower has an outstanding balance of $1,000 on June 1, the billing date. On June 21, well within the 25 day grace period, the borrower pays the entire balance of $1,000. Under the first of the two possible readings of “that billing period,” the credit grantor may not assess a finance charge on $1,000 for the June billing period but may assess a finance charge on the unpaid balance for the May billing period.2 Under the alternative reading, the credit grantor may assess a finance charge on $1,000 for 20 days (June 1—June 20) but must reduce the bill by whatever portion of the $1,000 balance reflects finance charges for the May billing period.

II
Analysis

The language in question was enacted in Chapter 143 (Senate Bill 591), Laws of Maryland 1983. In considering the amendment that finally became CL §12-903(d)(1)(i), the General Assembly apparently focused on the provision’s interaction with CL §12-905, which authorizes certain annual and transactional charges. If credit grantors were to be allowed to impose these fees, the General Assembly evidently concluded, then the borrower should have a 25 day float before a finance charge would be assessed on purchase obligations.3 Because the General Assembly intended that customers have 25 days to pay off a balance, we infer a related intent to allow credit grantors to impose finance charges on balances that were not paid in that time period, without rebating the accrued finance charges. Reading “that billing period” to refer to the period in which payment is made would be consistent with the parallel free-ride period required by CL §12-903(d)(1)(ii): “If there is no purchase balance at the beginning of a billing period, a finance charge or interest may not be imposed on a consumer borrower with respect to any purchase obligation added to the account during that billing period from the date of purchase to the end of that billing period.” See also CL §12-506(c) and (d) (same usage of “billing cycle” in Retail Credit Account Law). In contrast, the contrary interpretation would, uniquely, require rebating of finance charges and assessment of finance charges from the beginning of the new billing period. This cumbersome procedure would be inconsistent with a legislative scheme that, in general, was designed to afford credit grantors greater flexibility and ease of operations. It is axiomatic that a statute should not be construed to lead to an unreasonable or illogical result. Hoffman v. Key Federal Savings and Loan Ass’n, 286 Md. 28 (1979). In short, the better reading of CL §12-903(d)(1)(i) is that it allows a credit grantor to include a finance charge in the balance carried forward from the billing period for which a bill is rendered; however, it does not allow a credit grantor to assess a finance charge on that balance for the billing period in which timely, full payment is made. This construction better serves the apparent legislative goal: “When we pursue the context of statutory language, we are not limited to the words of the statute as they are printed in the Annotated Code. We may and often must consider other ‘external manifestations’ or ‘persuasive evidence,’ including a bill’s title and function paragraphs, amendments that occurred as it passed through the legislature, its relationship to earlier and subsequent legislation, and other material that fairly bears on the fundamental issue of legislative purpose or goal, which becomes the context within which we read the particular language before us in a given case.” Kaczorowski v. Mayor and City Council of Baltimore, No. 162 (September Term, 1986) (May 15, 1987), slip op. at 13.

III
Conclusion

In summary, it is our opinion that CL §12-903(d)(1)(i) prohibits assessment of a finance charge on an outstanding balance for the billing period in which the borrower pays the balance in full within 25 days of the end of the prior billing period. CL §12-903(d)(1)(i) does not require rebating of a finance charge properly assessed for that prior billing period, even if the borrower timely pays the balance in full.

J. Joseph Curran, Jr., Attorney General
Frank C. Bonaventure, Jr., Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 For brevity, we use the term “finance charge” instead of the full statutory phrase “finance charge or interest.”

2 In this example, then, the $1,000 balance properly includes any finance charges accrued in the May billing period. Finance charges may be imposed where a preexisting balance has been carried over from earlier billing periods.

3 Indeed, the amendment that became CL §12-903(a)(1)(i) was entitled “25 Day Free- Ride Amendment (Substitute).”