Shopping for Credit Card Is Dark Venture
If consumers would just take time to shop for a credit card, they’d find a better deal. So say consumer groups that put out guides to various terms available. So say bankers, insisting that there’s already plenty of variety and thus competition in the business and, therefore, no need for laws limiting interest rates.
But who can shop terms when none are volunteered, at least none that matter? Does one want the Citibank card advertised (with application form) in national magazines--the one with Dodger manager Tommy Lasorda’s endorsement and promises of discounts on food and merchandise but nothing on fees or finance charges? Does one want the First Select Visa offered by First Deposit National Bank through the mail--the one that boasts no annual fees and lower monthly payments but hides its interest rate and the fact that interest accrues from time of transaction?
Who knows until the card and, finally, the disclosure statement are in one’s hand?
Hard to Compare
This seems odd, given all the industry talk of comparison shopping, but Citibank, First Deposit National and other card vendors are within their rights in telling consumers nothing ahead. Federal regulations under the Truth-in-Lending Act require only that consumers have the “initial disclosure statement” of card terms “before the first transaction is made”--finance charges, how and when assessed, any other charges or fees. No particular disclosures are required in ads or solicitations unless they advertise any of those terms: If so, the others must be disclosed as well.
Instead, some legislators, both state and federal, propose that full disclosure be required when the card is first offered, not when it’s delivered. “It’s like unit pricing at the supermarket, where the consumer can compare two different products before buying,” says Julius Genachowski, aide to Rep. Charles Schumer (D-N.Y.), who proposed a measure requiring disclosure in both mail solicitations and applications. “If such disclosure provisions were passed, allowing people to compare all the banks,” says Genachowski, “they’d lower their rates and it would crack the market.”
It’s even harder to compare without any disclosure, never mind full. Someone who fills out a Citibank application from the recent magazine ads would be applying almost blind, informed only of the card’s “enhancements”--discounts on restaurant meals and “super merchandise,” access to a network of teller machines. The attached application is even less informative, asking only for applicant information and a signature attesting to one’s understanding that if the card is used or the account not canceled within 30 days, the agreement sent with the card will be binding.
Not a Departure
Actually, Citibank’s terms are rather standard: a $20 annual fee, 19.8% annual percentage rate, 30-day average grace period for payment on purchases, finance charges immediately on cash advances plus a 2% fee if advanced by some other institution, and late fees of $10 if no minimum payment is made. They’re just not immediately available, even from Citibank’s Hagerstown, Md., card information operator (a number not offered in the ads), who guessed a grace period of “about two weeks,” even for cash advances, with “no late fees that I know of,” and offered assurance that “it’s all explained in the first billing.” The only way to get real information is, as Citibank says, to “mail in the application.”
First Select Visa, on the other hand, headlines some terms--a pre-approved credit line of $3,000, no annual fee, 2% minimum monthly payments--and obscures others, specifically, a 21.9% annual percentage rate and no grace period at all--i.e., one pays interest from the date of purchase. What’s more, that $3,000 credit line “re served for you” and available on “request” includes a mandatory “minimum $1,000 cash advance check” that comes with the card, gathering interest that very first month of $18.25--close to some annual fees--or $54.75 on a whole $3,000.
If First Select’s terms are not exactly obvious, the organization behind it is virtually inaccessible--not an arrangement that works to the benefit of consumers. One gets only an 800 number, a name (a vice president not at that number), a P.O. Box in Pleasanton, Calif., and a reference to the offering bank, First Deposit National in Tilton, N.H.
The Tilton bank offers the 800 number: “If you want something on the Visa card, you have to call them.” The 800 number offers first “our San Francisco attorneys,” and finally a spokesman for Capital Holding Corp. in Louisville, Ky., a $7.2-billion financial services company specializing in insurance, which bought tiny First Deposit in 1984. Shortly thereafter, it began offering First Select cards--about 200,000 to date (with $200 million in outstanding balances), which makes it a far cry from Citibank (9 million card members) but in the top 200 of the 400 largest card-issuers.
Pre-Approved Money
Clearly, First Select’s post-application disclosure--”a standard M.O. in the industry,” says a spokesman--permits it to send out a lot of pre-approved money. Citibank holds back its disclosure because, says a spokesman, “the ads are designed to interest people and get them to seek information.”
Industry wisdom says consumers are put off by details, that they “might not like it if they’re confronted with a whole page of legalese,” says Joe Belew, executive vice president of the Consumer Bankers Assn, a trade group in Arlington, Va. But, he adds, “all of that incidental information is disclosed in advance of any usage of the card.
Conceivably, ordering a cash advance might be considered “usage,” and before disclosure, but First Select does permit one to cancel if the terms that come with the card aren’t pleasing. So does Citibank, if the card is returned unused within 30 days. But as Genachowski points out, such cards may be like book club selections: “Once you have that card, you’re inclined to keep it.”
