Citi versus Bank of America
I am very disappointed with Citi’s new Simplicity(SM) card. So much so, that I’m not even going to link to them. I am sure you’ve seen the adds on tv or in your web browser. I kept seeing the “Overduenza?” banner, so I clicked through to see what it’s all about. On the surface it sounds great – make one purchase during your billing cycle and Citi will wave the late fee.
But then there is the fine print. If you are delinquent on any other accounts you have with Citi, its affiliates, or any other creditors (I mean anybody – Chase, Bank of America, etc) – they have the right to revoke any promotional rates you have and adjust you up to the maximum rate (somewhere in the 20% range). This isn’t that uncommon these days. If you had the stamina to actually read through the credit agreement modifications you’ve received over the past few years, you’d find many credit card issuers have a similar policy.
But here is my real problem with the card -> They are making the late fee off of you anyway. How? They are aggressively targeting people who are carrying credit card balances and encouraging them to transfer them to this new card. Let’s say that you are an average American with somewhere in the neighborhood of $7500 in credit card debt and you do a transfer to take advantage of a 0% rate. Then something happens and you realize you’re unable to make the minimum payment (forgot, no money, irresponsible, etc). What do you do? You make a purchase – at best at 12.9%.
When you send in payments, those are credited against the balances at the lowest interest rate. So in addition to the $7500 at 0%, you are now carrying balances at 12.5% until such a time as your $7500 in debt is paid off. Over time, even on a pack of gum, Citi will make money. And it looks better to investors if they’re making money through credit issuance than simply on late fees.
So what’s my main beef? Why do I care that they are bilking money out of the naive or ill-informed? Because they are perpetuating the disease of lack of saving in our society. This will have deep economic effects on our society in the coming years if people do not change their habits. Unfortunately, I don’t think they want to.
That’s where I give props to Bank of America. They have a new credit card out called Keep the Change™. They will automatically round up every transaction you make to the nearest dollar and put that extra change into a savings account for you. Sure, it doesn’t earn beaucoup bucks like the stock market would. But it is a great tool for those without the discipline to save. Over time, the change you add in will really add up.
Hats off to Bank of America for increasing deposits (and shareholder value) while also creating value to society in general. I hope this program takes off and we see a new trend toward personal savings in this country.