Consumer Law

Credit Card Lenders Still Hoping Consumers Will Get In Too Deep?

By Wendell Sherk, Missouri Attorney

Credit card banks have been scrambling to raise capital and cut credit lines for consumers across the country lately.  So imagine my surprise to discover at least one bank still wants me to carry balances?

Here’s the deal that came in the mail last week:  My bank is offering a promotional 4.99% rate until January on new charges.  But only restaurant, bar, travel and entertainment services qualify.  This offer was extended in different formats — for different types of spending — on all the cards I have with this bank (we have three for business).

So here we have a large money center bank offering customers an unusual deal:  They’ll “only” charge 4.99%  for the next six months if I’m willing to run up debt on largely unnecessary entertainment.  And of course they’ll apply any payments to these lower rate charges before any higher rate balances I might be carrying (although fortunately we do not carry balances now).  It’s quite a deal — if I had to get overextended on fun.

It’s very odd to have a major bank still acting a little like a drug dealer, trying to get you hooked on the high of overspending.  That is precisely what these offers and ads do:  A 5% APR is far higher than the money in the bank will earn, so it doesn’t make sense to carry an “arbitrage” balance.  The low rate is not for balance transfers from higher rate cards.  And it deliberately applies only to recreational spending.  If you are already carrying a balance, the 5% special is, at best fleeting and, in reality, simply encourages you to carry the higher rate balances longer, earning the bank more money.

And there’s the key to it.  The bank is trying to maximize profits, like any reasonable business.  This makes sense if you are offering the deal to credit-worthy folks who otherwise don’t make you much money (i.e. we pay off our cards every month normally).  It’s a hint of a return to the old days when bankers only offered loans to people who didn’t really need a loan — with just a litte of the more recent predator still thrown in.

Full post as published by Credit Law Network on June 30, 2009 (boomark / email).