Unlike the major banks that issue credit cards, Discover is primarily a credit card company with an online banking business.  As a stand alone credit card company, Discover couldn’t risk angering its customers and damaging its reputation.  So, while other banks could afford to alienate customers, Discover made a very smart decision to treat their customers with respect. 

Unfortunately, Discover hasn’t been recognized for their humane behavior.  News stories about credit card companies behaving badly fill this blog and mainstream media outlets.  But a story about a credit card company acting  justly isn’t attention grabbing–that is the reason you haven’t heard too much about Discover in the past year.  Hopefully, more consumers will come to recognize how truly commendable Discover’s behavior during the credit crisis was. 

J.D. Power’s annual survey often ranks Discover second in customer satisfaction.  But as someone whose job requires reading and responding to stories from people whose financial well-being was jeopardized by unscrupulous credit card companies, I can say without equivocation that Discover is not only the best credit card company around but, more importantly, the only one which respects and cares about the relationships it has with its customers. 

-Jeffrey Weber

To learn more about Discover credit card offers, please see the Discover Card section of Smart Balance Transfers where you can compare current offers and apply online for approval.

Throughout 2009, credit card companies went on an interest rate raising binge.  Consumers with all types of credit, even very good credit, were slapped with often substantial rate increases.  These interest rate increases seemed to come out of nowhere, but were mostly due to the restrictions imposed by the CARD Act.  Prior to today, credit card companies could raise rates on customers who were delinquent to offset the potential risk they posed.  Knowing that this would no longer be allowed, credit card companies proactively raised rates on customers, causing substantial hardship for many.

Now that the days of interest rate increases have ended, consumers are looking at higher interest rates than they might have had were it not for the CARD Act.  And, with stipulations limiting late and over the limit fees, the cost of using credit cards is likely to increase for the foreseeable future as credit card companies adjust to the new rules.

In order to recoup billions of dollars in lost fee revenue, credit card companies may turn to annual fees or, less conspicuously, to slightly higher interest rates than they would have otherwise charged.  A 2% interest rate increase amounts to about $100 yearly in added interest expense to a person with a revolving balance of $5,000.  So, even if banks don’t charge annual fees, they can offer consumers higher rates that cost them more than a straightforward fee.

Ultimately, the benefits of the CARD Act may outweigh the drawbacks in the long run.  But the havoc this legislation wreaked on the balance sheets of American consumers will take years to justify the benefits new cardholders will reap.

-Jennifer Davide

As noted in an earlier story about Citibank annual fees, the annual fee may be credited to certain accounts if spending is sufficiently high on the card.  However, many people have reported that they intend to close their accounts rather than pay the annual fee.

One serious drawback to closing these accounts is the impact such an act will have on credit scores.  Closing a credit card account, especially one with no balance, can increase a person’s credit utilization ratio if they have higher balances on other accounts.  It can also shorten credit history if this is the person’s only, or first, credit card.

Unfortunately, Citi is charging a relatively substantial annual fee, while other companies are continuing to offer no annual fee cards, making the decision to keep the card open a difficult one.  Thus, if one wishes to protect their credit score, one option to consider is opening a new credit card with a company that does not charge an annual fee.  This may offset the damage done by closing a Citi account, as it will increase available credit before the closing of the Citi account negatively impacts credit scores.  Opening a new credit card with a different company before closing the account may also result in better rates on the new card, as that account will be based on a better credit profile.

-Jeffrey Weber

This new development is likely a beta-test in which a range of customers will be slapped with a range of fees and terms.  Once Citi is able to guage customer reaction, they may initiate these fees on a broader scale or drop the endeavor altogether.  Unfortunately, figuring out Citi’s moves is never an easy task.

Charging an annual fee to customers who use their cards infrequently may be a larger trend this year-and one with consequences.  Consumers who do not wish to pay annual fees will likely opt to close their accounts which can, in many circumstances, adversely affect their credit scores.  Thus, just as the interest rate increases of 2009 took many excellent credit scores down a few notches, the imposition of annual fees may inflict even more damage, as the CARD Act leads banks to take actions that are essentially making America a subprime country.

“I have perfect credit with a middle credit score of 755 as of 02/10/2010. In January the prior month I went over the due date on a payment by several days. About 7 days after the due date I logged into my account to make my payment and to my surprise they had changed my interest rate to 32.99% from 7.99%. I was furious as I had never been late or missed a payment. I called Advanta no less than a half dozen times and they also called me constantly. I explained to their calll center in India that the interest rate was abusive and that I was willing to continue making my payments if they lowered my interest back to the original rate.  After many calls back and forth in January they called me to tell me that they would be willing to offer me a 17.00% interest rate instead if I made a payment, I elected not to make the payment because I felt the rate was still abusive considering my credit is perfect and no late payments had been made in the past after numerous years of payment history with Advanta. Finally in February I receive a call from their call center in India which asked me some personal information to confirm my identity, then transferred me to a local office in Pennsylvania where I spoke with Dan Carr. He called me to find out why I had not made my payment and explained as above. I also mentioned I had to close one of my businesses due to our economic situation. He asked me if I could make a payment of $ 517.00 dollars and offered me three solutions, one was to send them 50% of the balance and they would offer me 0% interest on the remaining balance for the life of the credit line, the other was 30% of the balance and they would offer me a 7.99% as was originally, then they offered me a hardship option which did not require me to make a payment until march where I would pay them $780.00 dollars and they would match my payment, credit my account for the total of $1560 and the interest rate would be 9.99% so I agreed and made the $ 517.00 payment on Tuesday 2/9/2010. He then proceeded to tell me before the conversation finished that we would speak again in March.  Concerned about my perfect credit I called all day Wendesday and could not reach Dan Carr left 2 voice mails. I called Thursday and left another voice mail stating I wanted to make another payment on my account to please return my call ASAP. Finally Friday morning 2/12/2010 I called and reached Dan Carr who I spoke to for over 45 minutes pleading with him and even offerring to send them a few thousand dollars to show them good faith and not report me as a 30 day late to the bureaus because my credit report pulled on 2/10/2010 was spotless and I wanted to protect my credit and have it remain the same way. He proceeded to tell me that since I made the payment he had reset my “delinquency clock” and that now none of the options he had originally offered me were not available. I then called him back about an hour later and asked him once more about making another payment on my account, his response was that he could no longer help me I was to contact his Manager Tom Cush. I left a voice mail and then received a call back from Tom Cush regarding my message, I asked him the same question about making another payment to show good faith and elect one of the original options and that I would send them a few thousand dollars, he proceeded to tell me that because I made the recent payment I no longer qualified for the original options offered to me and that my interest rate would remain at 32.99%. A WARNING to all those out there they used a bait and switch technique to collect the $ 517.00 and then went back on their word. This becomes a downward spiral because now unless I do not make the February payment and make my account past due they will not offer me any assistance as they had originally offered and deceived me incredibly. So now I am forced to withold payment take another late payment on my credit report before they will potentially offer me any other help if any at all. It is impossible to make payments at 32.99% when almost every dollar is going to finance charges that are pratcially as large as and your minimum payment and is impossible to keep up with. I am looking for every possible place to file complaints against this ruthless, callous organization that operates like a MAFIA. Sadly enough my perfect credit is going to take a dive in the near future and they could care less about any of us as individuals. These kind of credit card tactics from these companies must be illegal for them to offer you programs and then retract their offers. They are deceitful and I was betrayed unbelievably!!!!”

I would like to bring to your attention a matter which may have escaped your purview.  In October of 2009, your company sent opt out notices to certain credit card holders.  Recipients of the letter were given two options:  close their credit card accounts and maintain their current interest rate or keep their accounts open and pay 29.99% interest, a punitive rate generally reserved for consumers who default on their payment obligations.  It is my understanding that consumers who failed to respond by the designated opt-out date would automatically have their rates increased. 

This week, I began receiving comments from consumers who, for one reason or another, failed to read or understand the opt out letters your company sent last fall.  Personally, I believe many of them simply mistook these notices for junk mail and tossed them in the garbage.  Regardless of the cause, these clients are paying dearly for the mistake.

Unfortunately, I have learned that Citi’s customer service department is telling some of these clients that nothing can be done to get their interest rates reduced from 29.99%.  One of your clients, who wants nothing more than to have her previous rate restored so she can afford to repay her obligations, informed me she was told to contact a credit counseling firm.  In other words, your company is turning its back on honest clients seeking to repay their debts.

You recently launched a website at new.citi.com, in which you appear in a video titled, “Our focus? Our clients. Period.”  In this video, the COO of Citi Cards states that, “customers are…the sole reason we exist.”  In the same video, a credit specialist from your organization states that, “we want our customers to feel like we care about them and we are going to do whatever it takes to help them get that way.”

I would like to believe that the message you are broadcasting to the world represents the true intent of Citi management.  However, it is difficult to reconcile your message of concern with reality.  Your customers are begging you to treat them fairly.  And your company is turning its back on them.

Mr. Pandit, I implore you to listen to the pleas of your clients and allow them to opt out of the punitive 29.99% credit card rates they unknowingly accepted by failing to open a piece of mail from your company.  If you truly care about your clients, this is your opportunity to show them that your public statements are more than corporate propaganda.

Regards

Jeffrey Weber

This “bad credit” credit card offer that puts all other subprime credit cards to shame is called the Centennial® credit card.  When you arrive at this card’s application page, you might overlook the small link to the terms and conditions.  If you do, you’re in for a nasty surprise.  The largest print on the terms and conditions page announces a 23.9% APR, a high, but not unreasonable interest rate for people with bad credit.  Unfortunately, this is the only reasonable thing about this offer.

The next area of the application covers fees:  a $95 processing fee and a $75 annual fee.  According to the application, “You must pay the $95.00 Processing Fee in full before your Credit Account will be opened and you have access to your available credit.”  In other words, you can’t use your credit card until you’ve paid them $95.

With the $95 dollars paid, you’ll finally be able to use your available credit line.  Since the annual fee of $75 will be reduced from your initial credit limit of $300, you’ll now have spent $170 to have access to $225 in credit at a 23.9% interest rate.  And you’ll already be in debt $75.

During the next year, paying on time and proving to be a credit-worthy customer will pay off big time:  for First PREMIER® Bank in Sioux Falls, SD.  According to the terms and conditions, which are less than clear, accounts are eligible for credit limit increases after 13 months.  However, “each time your Account is eligible for and approved for an unsecured credit limit increase, a Credit Limit Increase Fee in the amount of 50% of the amount of the credit limit increase will be assessed to your account.”

In other words, the credit card company can increase your credit limit and then increase your debt to them by as much as it wants-and, judging by the loose language involved, without asking you if you are interested.  While the terms state that, “This may or may not change in the future,” they are clear in stating that, “This fee is automatically assessed upon approval of your credit limit increase, which could be as soon as 13 months. This fee is a FINANCE CHARGE.”

There are other issues with this “bad credit” credit card worthy of exploration.  But I think the writing is on the wall.  Run, don’t walk from this offer.  And be prepared for other credit card companies to impose similarly harsh terms on subprime credit card applicants.

-Jeffrey Weber

Editor’s Note:  For additional insights about credit card options for people with prior credit problems, please see the article Smart Tips to Repair Bad Credit.

You can review the terms and conditions of the Centennial credit card application explored in this article here.  Terms and conditions change frequently.  The information in this article is accurate as of February 2nd, 2010 but may change at any time.

Credit card networks are corporations that own the intellectual property associated with their respective cards and work with banks to issue them to the public. While these companies originally issued the cards as well, in recent times their role has become more regulatory. Some card networks, such as Discover and JCB, still issue their cards as well as regulate them. Others, such as Visa and MasterCard, do not issue cards, leaving the job to independent financial institutions associated with them. American Express both issues cards on its own and employs independent issuing banks.

The important thing to remember is neither Visa nor MasterCard issue credit cards directly and haven’t for many years. Instead, their member financial institutions (known as “issuing banks”) do it for them. As a result, it is possible for one individual to be the primary cardholder for many Visas and MasterCards at the same time.

When seeking a credit card for balance transfers, many people mistakenly think that they cannot transfer balances from one Visa card to another.  Such is not the case.  You cannot transfer a balance from a Chase Visa card to another Chase Visa card with a 0% interest rate.  (You also can’t transfer a balance from Chase Visa to a Chase MasterCard to get a 0% promotional rate.)  However, you can transfer a balance from a Chase Visa to a Citibank or Bank of America Visa.  When it comes to balance transfers, the issue is not Visa or MasterCard.  Its transferring from one bank to another.

The exceptions to the 0% balance transfer rule are American Express and Discover.  Since they both issue credit cards and process them, unless they offer you the opportunity to transfer balances from one account to another, you will likely be unable to transfer balances from one Discover or American Express card to another.

 So how many Visas and MasterCards can you have? Theoretically that is only limited by the number of banks that will accept your application.

-Jennifer Davide

As 2010 begins, a growing majority of the credit card wielding population has developed an animosity, if not outright hatred for the pieces of plastic sitting in their wallets.  Credit cards, once relied upon to make day to day purchases or as emergency funding options, are now considered a financial albatross.  Consumers who had utilized credit cards offering low fixed interest rates for life to consolidate debt awoke in 2009 to find that low fixed rates were neither fixed, now low anymore.  Other consumers, many with impeccable credit scores, found their credit limits decreased so much they could no longer count on the card in their wallet to aid them in the event they actually needed to use it. 

Ultimately, the “striking” lack of demand for credit cards isn’t striking at all.  Credit card companies caused significant duress to consumers during one of the most tumultuous economic times in American history.  The resulting lack of demand today is nothing less than a consumer revolt against credit card companies they now view as predatory.  With time, consumers may change their view of credit cards and demand may increase.  However, scores of consumers will never forgive credit card companies for the hardships they caused in 2009, and those people will likely cause a striking lack of demand to continue for the foreseeable future.

Jeffrey Weber

According to a statement released by new CEO Brian Moynihan, “Economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.”  Despite this bleak assessment, Moynihan did note that Bank of America is, “encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer business.”

Bank of America will likley need the economy to improve substantially for a turnaround in its credit card business to occur.  In December, Bank of America reported a 13.53% charge off rate that is more than 40% higher than charge-off rates at Chase (7.11%), American Express (7.5%) and Discover (8.68%).

Credit card profits will likely be many quarters away as a new round of credit card laws is slated to take effect on February 22nd.  Under these new laws, banks will be restricted from raising rates on consumers unless they are delinquent for 60 days, a factor that will limit all bank’s from repricing risk in their portfolios.

For complete details on Bank of America’s credit card woes, please refer to Bank of America’s fourth quarter earnings press release:  http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-irhome

-Jeffrey Weber

Given the 4% balance transfer fee, this was either a decent offer or a relatively poor one.  If she were to get the 2.99% balance transfer rate, she would effectively be charge 6.99% for the balance transfer.  Other companies that offer 0% rates for a year and charge 5% fees are clearly a better deal, as this would save her about $100 on a $5,000 balance transfer.

This balance transfer offer, with its tiered structure, essentially leaves applicants in the dark about what credit card terms they will actually get.  And, unfortunately, it looks like this is the future of balance transfer offers.  Credit card companies have been cutting back on balance transfers since late 2008, and the new credit card laws are causing them to test new pricing strategies, with higher fees and the possible end of 0% rates ahead.

If you are a recipient of a 0% or 2.99% offer, you may want to consider checking your credit report before submitting an application.  If you have a credit score above 750, you stand a much better chance of getting a 0% APR for 12 months instead of a 2.99% APR.  However, if you do not have excellent credit, your best bet may be to apply for a credit card that offers a 0% rate to all approved applicants.  This way, you know you are getting the rate you desire.

To learn more about current 0% balance transfer credit cards, please use the navigation on your left to compare offers and apply online.

Editor’s Note:  The one positive thing about this credit card offer is the fact that it shows credit card companies are starting to mail out deals.  I remember getting new offers from Bank of America multiple times a week two years ago.  Today, its become rare to see any offers at all.  Perhaps credit card companies are starting to lend again, albeit at much higher rates than many of us have become accustomed too.