Take an interest in the fine print
When Best Buy offered Mike Walker the chance to take home a television set and make no payments, interest or otherwise, for 12 months, it seemed like a great deal.
Walker had shopped with Best Buy for years and had great faith in the retailer, so he barely glanced at the 13-page booklet that came with his new Best Buy credit card. It wasn’t until a few weeks ago -- when the 12 months were nearly up -- that he found the catch.
The company had been tracking the “deferred” interest on his outstanding balance. If any balance remained on the card at the end of the 12 months, Best Buy would retroactively charge him interest for the whole year.
“I’d been slowly paying down the balance, thinking that I would owe interest on whatever amount I had left on the card at the end of the no-interest period,” Walker said. “But that’s not what they do. This no-interest-for-12-months isn’t what it seems.”
A Best Buy spokeswoman said that the company wasn’t hiding anything, and that if Walker had read the paperwork he would have known what he was getting into.
Walker acknowledged that Best Buy had in fact made full disclosure, though in the fine print. The big print said “no interest,” he said, and nobody called the fine print to his attention.
“They’re creating a trap for people.”
Consumer advocates agreed -- adding that it was a common trap.
Buy now, pay later come-ons are a popular way to get consumers to part with cash that they haven’t quite earned yet, said Gail Hillebrand, staff attorney with Consumers Union in San Francisco.
“These programs pay off for the credit companies because people get stuck in them,” she said. “It’s very dangerous to think that you are one of the few people who won’t get tricked.”
American Airlines, for example, has a fly now, pay later program that offers six months of “no payments, no interest.” Read the fine print and you’ll find that finance charges accrue on the promotional balance at rates as high as 25.96% from Day 1. If the entire balance isn’t paid in full by the end of the promotion period, the carrier’s paperwork says, “finance charges for the entire promotional period will be added to your account.”
The same essential pitch is made by many retailers, including Guitar Center, Sears, Office Max, Home Depot and Ethan Allen: Big letters proclaim that the credit is free, and small letters note when and how the company can take that promise away.
Even if the print were bigger, people might not understand the offer, Hillebrand said.
“It is hard to imagine a disclosure that could effectively communicate that ‘this deal is not what we claim it is,’ ” she said. “People think that zero means zero.”
The interest charges are nothing to sneeze at. The bulk of the advertised offers note that the interest, when charged, ranges from 20% to 26%, turning a $1,000 purchase into more than a $1,200 debt.
It’s worth mentioning that there are numerous efforts afoot to curb what regulators are calling “abusive and misleading” credit marketing tactics. Bank, thrift and credit union regulators proposed rules recently that would bar some retroactive rate increases on credit cards and stop banks from charging customers late fees when they sent their bills out too late for the consumer to return a payment in time.
In addition, Rep. Carolyn B. Maloney (D-N.Y.), and Sen. Christopher J. Dodd (D-Conn.) have introduced comprehensive legislation that would ban retroactive rate increases, provide warning for future rate increases and demand better credit card billing practices and disclosures.
None of the proposals would curb the “zero interest” deals that have Walker riled.
What gets to the Los Angeles businessman most is that he so trusted Best Buy that he didn’t have his guard up.
“If a credit card company approaches me, I am really leery,” he said. “But when I am dealing with [what] I think is an upstanding consumer retail store, I’m not looking for a trap. When I find out they’re as duplicitous as the credit card company, that’s what I don’t like.”
Best Buy spokeswoman Kelly Groehler said she was sorry that Walker was dissatisfied but added that the terms of the deal were spelled out “in the contract.”
In fact, people walking into a retail store may have to be more cautious about applying for credit than those walking into a bank or responding to a credit card solicitation by mail, said Bill Hardekopf, chief executive of credit card shopping site LowCards.com.
“Retail cards tend to be costlier than normal credit cards, even though they look great,” he said.
They tend to charge higher interest rates than multipurpose cards, such as Visa and MasterCard accounts issued by banks, and have just as many fees and traps, he said. “You’ve got to read the disclosures. All of them. Even if you have to take them home with you to do it.”
That’s particularly challenging when somebody is trying to talk you into an impulse purchase, Hardekopf acknowledged. But it’s far less costly than finding out later that your no-interest deal dramatically boosted the price of your TV.
What do you do if you already bought and now realize you can’t repay in time?
Consider transferring the balance, said Ben Woolsey, director of marketing and consumer search at CreditCards.com. Some card companies offer promotional deals in which they don’t charge for balance transfers -- and they might provide a promotional rate for a set time too, making it easier to repay the balance.
But before you switch, read the fine print.
“You need to be cautious and suspicious of everything,” Hardekopf warned.
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