Credit card companies are pushing new cards with a twist: no $39 fees for late payments.
Designed to blunt criticism of ever-higher fees, the new cards — with names like "Simplicity" and "Clear" — still can ding late payers. After extolling its new features, Citibank's Simplicity card offer warns that late payments could trigger an increase in the interest rate charged on balances as well as a negative credit report. Such reports often cause other lenders to boost interest rates on a consumer's other outstanding debts.
American Express Co.'s Clear card will increase a user's interest rate to 28.74 percent if a consumer pays late twice a year.
David Robertson, president of the Nilson Report, a newsletter that monitors the credit card industry, said he thinks the new cards could be attractive to consumers fed up with punitive fees. However, he warns, the $39 late fees that are currently assessed may add up to far less than the hundreds of dollars in extra interest consumers would have to pay over time if the interest rates on their outstanding balances increase. "It's yet to be proven that consumers read the fine print," he said.
'Invitation to disaster'
Pennsylvania attorney Michael J. Bresnahan did read the details when he received his Citibank solicitation last week, and his reaction wasn't positive. "What a deal, no late fee and the interest on the balance goes to somewhere in the 29 percent range," Bresnahan wrote in an e-mail. "Appalling."
Bresnahan said he has no choice in accepting the card; Citibank said it was sending it to him, whether he wants it or not, to replace an existing card. But, he said, "I'm certainly not going to pay late; that's an invitation to disaster."
Citibank spokesman Robert Julavits said Simplicity was developed "in recognition of what our customers told us they want" — no annual fee, no late fee. The company will officially announce the card next week. It will still impose cash-advance and over-the-credit-limit fees.
Citibank said the bank's new card is not an attempt to make customers pay higher interest rates. Rather, the bank said it sees the cards as way to attract new customers and win the loyalty of existing ones.
American Express's Clear card is still being test-marketed and is available only online. It charges no fees — for late payments, cash advances, balance transfers or exceeding the credit limit.
The rapidly growing New Jersey Commerce Bank began offering select bank customers a fee-free card in August.
'Kinder, gentler cards'?
Credit card issuers are trying to offer "kinder, gentler cards," said Linda Sherry of Consumer Action, a nonprofit organization that conducts an annual survey of credit card fees and rates.
In some cases, they may actually be good alternatives to the current fee-laden cards, Sherry said. She cited the Clear card, which comes with a 13 percent interest rate, about the current industry average for standard credit cards. Consumers can shop around and find a card with a lower rate, Sherry said, but if the lower-rate card is loaded down with fees, then the fee-free Clear card may be better choice. Of course, she warned, consumers need to make sure they don't pay late more than once a year and end up with an interest rate close to 29 percent.
The fee-free cards reflect heightened competition in the credit card industry, where mergers are rapidly reducing the number of major issuers, and the thriving housing market has allowed many consumers to reduce outstanding credit card debt by refinancing their homes. Efforts to boost card use have prompted a rash of new card offers.
Many card issuers are using rewards to gain new customers, offering up to 5 percent cash back on grocery store and gas station purchases, special seating in prime restaurants or nightclubs, or one-of-a-kind vacations for cardholders with thousands of reward points. Still other financial institutions have launched programs to turn reward points into savings accounts.
"What you're seeing here is an industry trying to put on a much more friendly face at the same time they are facing a profit squeeze," said industry critic Robert D. Manning, author of "Credit Card Nation." That means credit card issuers will be looking for "new and innovative ways to get more money from consumers."
If the industry is trying to address punitive fees, "that's a good thing," said Travis Plunkett, legislative director for the Consumer Federation of America. "But if this is a game of credit card Whack-a-Mole, where the fees they want to charge are simply going to pop up in a higher interest rate, that's not a good thing" — especially if companies appear to be more permissive while encouraging greater card use, Plunkett added.