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Credit Card to Tout No Late Fees


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http://online.wsj.com/article/SB112916657456367386.html?mod=todays_us_personal_journal

Credit Card to Tout No Late Fees

By DIYA GULLAPALLI

Staff Reporter of THE WALL STREET JOURNAL

October 13, 2005; Page D5

Citigroup Inc.'s credit-card unit plans to launch a card next week called Simplicity, which will be advertised as having no late fees for customers who make at least one purchase a month.

Citi's Simplicity card comes as customers have grown increasingly frustrated with complicated card rates, restrictions and service in recent years. Simplicity holders will have immediate access to customer-service representatives and will be offered 0% interest for the first year, with rates increasing to the prime rate plus 3.49% after that for certain card holders.

"This product is not designed to encourage people to be late on their payments," says Ed Eger, an executive vice president at Citi Cards. "But it is designed to address key complaints" like excessive legal jargon in contracts.

Mr. Eger says the Simplicity card will involve less contractual information and won't include fine print. He declined to comment on how the lost late fees will specifically affect Citi's profitability.

According to cardweb.com, a consulting group that tracks the card industry, credit-card fees -- including those from retailers -- have risen in recent years and now contribute more than a third of total credit-card revenue overall.

Though the Simplicity card hasn't yet launched, some of Citi's 150 million customers have already begun receiving direct-mail information about automatically qualifying for the card.

Citi may well be responding to competitors like Capital One Financial Corp., which has pushed its No Hassle benefits in recent years. Like the Simplicity card, No Hassle card features include no late fees, or other fees like those for exceeding limits and making balance transfers and cash advances.

Just because a credit card claims not to involve fees doesn't mean card companies can't collect in other ways. One recent Capital One direct mailing, for example, cited no fees and a $6-per-month interest charge for every $1,000 of account balance. However, that interest could double to $12 if a customer fails to make a payment or breaks other rules.

Citi plans to launch the card at an event in New York next week, where guests will be treated to spa treatment that includes a massage, manicure or pedicure.

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I actually got one of these mailings already. First thing that came to mind was "this is trouble". Sure there aren't any late fees...and a lot of consumers are going to use that as an excuse to fall behind on payments..

What they aren't going to realize is that even though there aren't late fees, it's still going to get reported to the bureau as 30 days late/60 days late/etc. if they do put it off like Citi is claiming they can basically do.

End result? Depressed scores, ability to charge higher interest rates down the road.

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Grim is with Xan on this one. Nobody in the credit industry is this generous without thinking it through and realizing how much they can make on the "back end". Grim wonders if a "universal default" will be in place, or the interest just rolls and rolls and rolls until you're snowed under.

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  • 2 weeks later...

All the Citi card is doing is baiting those who are already on the edge. Somehow I don't see the point of having to ADD MORE DEBT in order to avoid a late fee. As long as you make at least 1 purchase, there's no late fee.. and I'll bet you a $1.00 purhcase doesn't count !!

I have the same problem with Amex's new "ONE" card with its bait of a 'savings' account. Its a revolving card -- at what interest rate ?? The savings is at 3.5%.. ANY interest rate on charges is going to eat that for lunch -- how is that 'saving' ?????

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