Reform law, recession lead to 'retro' credit card offers
They offer payment control, plain vanilla features, but consumers still face rocky road
First the stick, now the carrot. First the enforcer, now the friend.
Following a summer of roiling discontent endured by economically stressed credit cardholders and the equally stressed card issuers that regularly smacked them around, some companies are rolling into autumn with a variety of kinder, gentler programs that get a jump on new federal regulations -- and are spiced with a certain retro sensibility.
All of the initiatives are intended to help consumers manage their debt. And, in one way or another, all touch on old-fashioned values that remind us of a time when life in general and money management in particular seemed less complicated:
- The Chase Blueprint program from JP Morgan Chase gives cardholders new options to pay off their balances and new tools to track their progress. Remember, back in the good old days, when people actually settled existing debts before incurring new ones?
- The plain-vanilla BankAmericard from Bank of America seeks to simplify matters and is named for one of the first popular credit cards introduced a half-century ago.
- New enhancements to American Express' Rewards program are being accompanied by an ad campaign that emphasizes the difference between its original, conservative, no-frills charge cards and today's more popular credit cards.
In mid-September, Chase, Bank of America, U.S. Bank and Wells Fargo also announced consumer-friendly changes to their debit cards' overdraft policies, and other companies are cagily saying that they are looking at their own card operations.
"We are not in a position to comment on specific products and services," said Samuel Wang, a spokesman for Citi. "We are working to determine what changes will be necessary so that we can best serve our customers in this new regulatory environment."
Sharply different credit scene
So, what is going on here?
I want to know the catch. It appears to me that these companies are trying to come up with new marketing angles, given the new demands being placed on them by the government and the fact that a lot of their markets may be drying up.
Mary Beth Pinto
Pennsylvania State University
Is it possible that the same industry that for decades encouraged consumers to spend, spend, spend and devoted the last few months to ratcheting up interest rates, slashing available balances and hiking minimum balances and generally coming on like the Wicked Witch of the West ("I'll get you, my pretty, and your little dog, too!") is really more of a Tin Man, inherently obliging and finally acquiring a heart?
Nah, say some consumer activists and independent observers, not really. It's mostly a reflection of the bleak economic environment, a tougher regulatory climate and the new business realities created by both phenomena.
"Banks are putting lipstick on pigs to claim that any changes they are making are improvements, when most of the changes are designed to extract as much revenue as possible," said Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group, a federation of consumer interest organizations around the nation. "Banks haven't changed, even if the law and economy have."
Said Mary Beth Pinto, a professor of marketing at Pennsylvania State University and senior research associate at the school's Center for Credit and Consumer Research: "I want to know the catch. It appears to me that these companies are trying to come up with new marketing angles, given the new demands being placed on them by the government and the fact that a lot of their markets may be drying up."
Others, however, adopt a more positive tone.
We're committed to providing services that respond to our customers' needs. Going forward, we'll continue to evaluate products and features based on customer feedback.
Bank of America
David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, which represents 37 nonprofit credit counseling companies, agreed that many issuers seem mostly interested in polishing their tarnished public image, but he also found value in some of the new programs.
Jones called Chase's Blueprint plan, in particular, "a great consumer benefit for those who watch their purchases."
Card issuers acknowledge that their moves largely are intended to retain their customers and attract new ones, but they balk at what they consider overly cynical interpretations.
"Consumers told us they want more control, more simplicity and more predictability in managing their credit cards," said Phil Christian, senior vice president, Chase Card Services. "Blueprint is designed to meet those needs.
"We are empowering our customers with tools to create customized payment plans so they can avoid paying interest and pay off balances sooner, seeing their progress toward achieving their goals on every statement," he said.
Betty Riess, a spokeswoman for Bank of America, pointed out that her company also recently introduced a one-page disclosure summary for mortgage customers.
"We're committed to providing services that respond to our customers' needs," she said. "Going forward, we'll continue to evaluate products and features based on customer feedback."
A look under the hood suggests that consumers can extract some real value from these programs, so long as everyone is aware of the limitations and a few pitfalls:
This program from JP Morgan Chase, by most measures the nation's largest credit card company, features a free online platform that allows customers to set up their own payment plans. It was unveiled Sept. 15.
Among other things, it permits cardholders to distinguish between categories of purchases and pay certain expenses -- for instance, grocery and gasoline bills -- in full every month while continuing to finance (and pay interest on) other, presumably larger purchases.
Most other cards immediately add the cost of those grocery and gasoline bills to the customer's existing, unpaid balance -- and accrue interest on all of it. Under this plan, new purchases in the designated categories avoid interest charges, so long as that portion of the credit card bill is paid in full each month.
Another feature can help you calculate the exact monthly payment -- principal and interest -- required to pay off large purchases or current balances over whatever time frame you select.
"This is yet another proactive step Chase has taken to help our customers succeed," Christian said. "And when our customers succeed, we succeed."
The program, however, is being made available only to certain customers -- the 20 million people who hold Chase Freedom, Chase Sapphire, Chase Platinum (now called Slate) and Ink cards. Chase has about 119.4 million cards in circulation in the United States, according to statistics compiled by CreditCards.com.
Pinto, the Penn State professor, said the program sounded helpful -- if customers get around to using it.
"Online money management tools are a good thing -- ways to help people track and categorize their spending," she said. "But the people who get into trouble either don't know how to use it or don't care or just don't bother to do it."
Bank of America's BankAmericard
BofA, meanwhile, is introducing what it calls the BankAmericard Basic Visa card, an offering designed to address the Obama administration's call for an easy-to-understand, "plain vanilla" credit card.
By some measures the second largest credit card company in the United States, Bank of America says its BankAmericard -- which carries the same name as a pioneering credit card introduced in 1958 -- features a single-page disclosure form, no over-the-limit fees, a flat fee of $39 for late payments and a single interest rate for all purchases and balances.
That rate, however, should be noted by consumers. It is pegged to the U.S. prime rate plus 14 percentage points, which sounds like a lot, and it is. The current prime rate is 3.25 percent, meaning that the BankAmericard's interest rate would be 17.25 percent. By comparison, the national average credit card interest rate is 12.32 percent, according to the Sept. 23, 2009, survey by CreditCards.com.
Still, company officials say, this card is a big step forward. It will be available starting in October 2009.
"From an industry perspective, it's difficult to compare the features of the Basic card [with other cards] since we haven't seen similar products in the market," Riess said.
Pinto said she likes the philosophy of "simple is better" when it comes to credit, but she really likes an even simpler approach. "It goes back to very fundamental issues," she said. "We need to simplify and use less credit. Don't buy what we don't need. Today, what was considered a luxury before is considered a necessity. Don't put on a credit card what you can't pay off at the end of the month."
American Express' Rewards
And here comes American Express, launching new options for its Rewards program. This program allows cardholders to use points toward what American Express calls "everyday" expenses such as groceries, gasoline and communications bills.
"We know card members are looking for ways to better manage their finances in this economic environment," said Lynne Biggar, AmEx's senior vice president, membership rewards marketing and partnerships.
The company also is sponsoring an ambitious ad campaign that distinguishes between the standard AmEx charge cards -- which generally require full payment within 30 days of billing -- and the more popular, extended payment credit cards issued by other companies (and by American Express itself).
"Because you pay it off in full each month, it not only helps you spend responsibly -- it offers something perhaps more valuable: certainty," says one ad for AmEx's charge card.
All of this certainly has galvanized the attention of other card issuers, with Discover quickly reminding customers earlier this month that it already offers financial tools that help them manage their credit.
"We've actually had a financial management product and several financial management tools available to our card members for the last couple years," said Matthew Towson, a spokesman for Discover.
Those include a "Paydown Planner" and "Purchase Planner," which help guide customer spending and payments by calculating the amount of time required to pay off a Discover balance and help customers determine how large purchases may affect their accounts.
Citi, meanwhile, noted that it has been offering the Citi Forward card since March. The company said it's the only credit card that lowers a card member's purchase interest rate by a quarter percent when they use credit wisely. It also offers reward points for paying on time and staying under the credit limit.
Altruism? Not likely
Industry analysts say that none of this is an accident or represents a sudden turn toward altruism and charity on the part of credit card companies. Still shaken by the deep recession, virtually all issuers are wrestling with sharp declines in revenues amid record credit card defaults.
That, in turn, has nudged them into tightening the screws on millions of customers -- hiking interest rates, imposing higher late payment fees, cutting available balances and elevating minimum payments. Chase, for instance, recently raised its minimum payments for some customers from 2 percent of the outstanding balance to 5 percent of the outstanding balance. A CreditCards.com survey, conducted in June 2009 showed two in every five cardholders had been hit by a negative action from their card issuers.
The response was predictable:
Many cardholders were enraged and remain enraged. The latest J.D. Power and Associates credit card satisfaction survey found that overall credit card satisfaction plunged to a record low -- only 703 on a 1,000-point scale.
In addition, credit card customers have been voting with their checkbooks. The total amount of outstanding revolving credit has plunged in recent months, according to the Federal Reserve, as consumers pay off their debts and work diligently to keep their credit cards hidden in their wallets and purses.
At the same time, largely as a result of consumer complaints, credit card companies have come under extreme pressure from federal and state regulators. A wide variety of new restrictions required by the federal Credit Card Accountability, Responsibility and Disclosure Act, signed by President Obama in May, went into force in August. Its most far-reaching limits on card issuers take effect in February 2010.
Our goal is to strengthen our relationship with customers, being their card of choice. If our products and features work best for our customers, we will see their loyalty in return.
Thus, with credit card companies facing revenue declines, ugly public relations and an incoming tide of new restrictions, the timing of these initiatives is hardly coincidental.
"Our goal is to strengthen our relationship with customers, being their card of choice," said Chase's Christian. "If our products and features work best for our customers, we will see their loyalty in return."
Said Citi's Wang: "We are committed to implementing the new legislative and regulatory rules and to having clear and understandable credit card terms that enable consumers to make truly informed decisions about how to use and manage their credit."
Jones, of the credit counseling association, praised Chase for unilaterally developing a program with features not mandated by the new law, but he said Bank of America's program is a different matter.
"The Bank of America program is directly related to the new law," he said. "Agreements such as this will be standard in a few months."
Still, Jones sees some value in it -- even considering that 17.25 percent interest rate.
As of Feb. 22, 2010, one of the industry's favorite tools -- retroactive interest rate increase -- will be banned under the new federal law. Many experts expect card companies to hike interest rates just before that restriction takes effect.
"The 17.25 percent will be a fantastic rate after February," Jones said. "Rates are going way up for most card users."
See related: Banks' overdraft fees draw national scrutiny, A comprehensive guide to the Credit CARD Act, First phase of credit card reform kicks in, JD Power: Consumers growing more dissatisfied with credit cards, CreditCards.com poll: 2 of every 5 cardholders report getting whacked
Published: September 28, 2009