Worried About the Rent? Charge It
Having issued five credit cards for every man, woman and child in the United States, banks are coming up with a new use for that plastic: Charge the rent.
Nearly a million tenants can use their cards to pay their rent, thanks to an arrangement between Visa and the biggest U.S. property manager, Chicago-based Apartment Investment and Management Co. Visa touts the service as convenient for renters and landlords.
Debt counselors, though, are aghast. They worry that putting the monthly rent on a credit card will drive debt-ridden consumers even further into the hole.
“Nobody in our industry in their right mind would be in favor of this,” said Dianne Wilkman, president of Springboard, a nonprofit consumer counseling service in Riverside. “We don’t advise putting the necessities of life on credit.”
Visa’s initiative began two years ago with a few renters and is spreading nationwide. It is part of a growing effort by credit card issuers to boost profits by encouraging consumers to use cards for recurring transactions, such as paying utility bills, car payments and now rent, said Robert McKinley, president of CardWeb.com, which tracks credit card trends.
“It’s a saturated industry,” McKinley said, noting that 1.4 billion cards are in circulation. “Now the emphasis is to get consumers to use cards for everything.”
Americans already charge three times as much as they did 10 years ago, McKinley said. About $1.5 trillion was charged last year, compared with $500 billion in 1992.
Some of that increase, credit card experts say, has been driven by Americans’ lust for frequent-flier miles, a credit card perk that became popular in the last 10 years.
Northwest Airlines, for example, reported last year that its customers had racked up 8.3 million unused miles, a 28% increase from two years earlier.
Consumers also are charging much more than they’re willing--or able--to pay back every month. Unpaid balances on credit cards are more than twice as high as they were in 1992: $8,367 per card-carrying household, compared with $3,444 a decade ago.
And more consumers are falling behind in their payments, industry statistics show, while the number of bankruptcy filings hit a record high of 1.5 million last year.
Counselors Discourage Charging Regular Bills
Credit counselors say charging groceries, monthly bills or rent often is a sign a consumer is headed for credit trouble. They contend that only consumers who pay off their accounts in full each month should consider using credit cards to pay regular bills. Otherwise, the recurring payments will accrue interest at rates that average 17% a year and can easily spiral to 29%.
Nevertheless, the idea of using plastic for monthly bills is catching on. One of three consumers in 2000 used credit cards to make at least one recurring monthly payment--typically for a health club membership, Internet service or newspaper subscription, according to a MasterCard survey.
Convenience was the main reason, although 45% of the card users said they benefited from lower stress, knowing the bills would be paid on time. And 17% said they enjoyed some kind of financial reward, such as frequent-flier miles from credit card charges or a discount on their bills.
The dollar amounts of recurring bills charged to credit cards are fairly low, however. Only about 3% of MasterCard’s total volume last year was attributed to recurring payments, MasterCard spokesman Alex Lau said.
Visa and MasterCard are trying to change that. MasterCard has been running television ads encouraging cardholders to charge more of their monthly expenses--phone, cable, utility, car lease and others--as a way to simplify their lives.
Bigger bills mean bigger profits for Visa and MasterCard members--typically banks and credit unions--that issue credit cards. Issuers get about 2% of each transaction, paid by the merchant, plus any interest charges that accumulate if consumers don’t pay off their bill each month.
Other Property Managers May Follow
Apartment Investment and Management began accepting Visa payments at a few of its properties almost two years ago, Visa senior sales director Linda Brockbank said. Since then, the program has spread to all 337,000 Aimco units in 46 states--including more than a dozen in the Los Angeles area--which house nearly a million tenants.
Besides having their rent payment automatically charged to their credit card each month, tenants can use their Visa credit or debit cards to pay one-time costs, such as security deposits and application fees, Brockbank said.
Renters benefit by avoiding late fees, Brockbank said, and Aimco finds its units easier to rent because tenants don’t have to pay move-in costs with cash.
Visa won’t reveal how many Aimco tenants use plastic to pay rent, but it says a recent poll showed 40% of those who are aware of the option use it.
Other large property managers may follow. Archstone-Smith Trust, a Denver-based real estate company with 80,000 units nationwide, accepts credit cards at Studio Colony Apartments in Studio City, which it recently acquired from a landlord who offered the service, spokeswoman Heather Campbell said. The property manager is studying ways to take the service nationwide.
“We’re always looking at ways to make it easier for people to do business with us,” Campbell said.
Despite credit counselors’ concerns about the trend, Visa says it isn’t worried about adding to consumers’ debt loads. Those who use credit cards to make rent or other payments, Brockbank said, don’t pay interest on the transactions.
“We’ve found the cardholders most likely to do a recurring transaction are nonrevolvers” who pay their balances in full each month, she said.
Consumers also have the option of using debit cards to pay recurring bills, she said. With a debit card, the bill is deducted directly from a checking account, so no interest charges can accrue.
About 30% of Aimco tenants who pay their rent with a Visa use a debit card, Brockbank said.
That doesn’t satisfy credit counselors, who say consumers who use plastic tend to spend more money than they would if they paid by check or cash. Visa says one of the advantages of its arrangement with Aimco is that tenants seem to be less price sensitive.
“Offering residents the automatic bill-payment option helps avoid that moment of truth each month,” Visa’s news release says, “when residents write a check and inevitably ask themselves, ‘Am I paying too much for what I’m getting? Should I look around to see if I can get a better deal elsewhere?’ ”
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Times staff writer James F. Peltz contributed to this report.
