Banks Lure Customers in With "Cheap Credit Card Cash"

Posted by Cori O'Donnell - Tuesday, October 11th, 2011

America’s biggest banks are urging their credit-worthy customers to acquire more debt.

Now, they won't come out and tell you this (obviously). What they will do, is lure you in with a promotion you can't pass up, offering free cash. What they will also do, is spike all sorts of hidden account-holder fees as soon as the promotion expires...

Banks are mailing out credit-card balance-transfer offers with rates as low as zero percent but are tacking on fees for other services.

Bank of America (BAC) is offering certain customers a rate of zero percent plus transactions fee through June 2012. Bloomberg News reviewed the terms of the bank offer and reports that customers who partake in the promotion with balance-transfer checks may deposit the checks to use as short-term loan, instead of paying off a balance at another financial institution. There is a one-time fee per transfer of $10 or 4 percent whichever is greater.

JPMorgan Chase & Co (JPM), Citigroup Inc. (C), and Wells Fargo & Co, (WFC) are offering similar promotions to their customers.

Greg McBride, a senior financial analyst for Bankrate.com, said the rates being offered are a good deal for customers that can closely follow the terms; the average rate for an unsecured personal loan is 13.96 percent.

JPMorgan’s select customers may receive offers to write a balance-transfer check to themselves for up to $5,000 to take out a zero percent loan for up to 15 billing cycles. Citigroup is offering some customers 0.99 percent on balance transfers through February 2013.

The offers arise as banks add on fees to checking accounts in an effort to make up for lost revenue from federal rules on debit-card swipe transactions.

According to the terms of Citigroup’s promotion, customers will pay a one-time fee of $5 or 3 percent, whichever is greater, per transaction. Wells Fargo has similar conditions, and is offering rates from zero to 6.9 percent.

Customers should not participate in certain promotional offers though unless all minimum monthly payments can be made and have the balance owed paid off in full before the promotion expires.

Bank of America’s rates, for example, will spike up to 22.99 percent at the end of the promotional period.

“It looks like they’re giving away the farm,” with the offers, said Ben Woolsey to Bloomberg News, director of marketing and consumer research for CreditCards.com. “On the small percentage of people who don’t pay it off on time, they make a killing.”

Capital One (COF) Bank customers who are considered to be more creditworthy are being sent balance-transfer checks with teaser rates. The customers can deposit that money into their account or use it for another purpose.

Bank of America’s balance-transfer offers are also sent to customers with better credit histories.

According to Mintel Comperemedia, a company that tracks market trends, “In the six months through August, about 71 percent of credit-card offers to potential new customers came with teaser rates on transfers, compared with 66 percent of mailings in the same period last year.”

Teaser rates, and added fees are being used so banks can make up for lost revenue. U.S. bank customers will start to see less free checking.

The Federal Reserve issued a new rule in June that went into place on Oct. 1, and it doesn’t allow banks to receive more than 21 cents per debit-card transaction plus 5 basis points of the purchase  price.

This new rule has cost the banking industry $6.6 billion annually in lost revenue, which is on top of the $6.5 billion in yearly losses that are a result of banks no longer allowing to automatically enroll customers in over-draft protection agreements.

Citigroup plans to raise fees on basic checking accounts from $8 to $10, but customers who maintain a minimal balance of $1,500 combined in their checking and savings account will be exempt from the fee.

Americans are beginning to rely more on their plastic as a form of payment. Silvio Tavares, senior vice president of global information and analytics at First Data Corp. found that consumers spent 6.8 percent more on their credit cards at food and beverage stores alone in August.

Increasing credit card use among consumers may be a sign that credit-card debt is on the rise.

Bank of America recognizes that Americans prefer to swipe their cards rather than carry cash and is planning to charge debit-card users a monthly fee of $5 to those who make purchases with their cards.

Wells Fargo is planning on trying out a $3 monthly fee to certain debit-card users starting on October 14.

It can’t be stressed enough that bank customers need to be aware of all terms of a promotion and of the newly added fees on accounts and debit-card transactions.

Make sure you read the fine print before you commit to any of these alluring bank offers...

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