One thing we’ve been hearing about with the CARD Act is that the rules credit card companies work by will be different and that credit card companies will be pitching a more basic card, geared toward the basic consumer. These credit cards have been referred to as “vanilla cards.” They’re are supposed to have clear rules, less fine print, and be easier to understand.
Bank of America has recently released one of these cards, their “Basic” card. I checked out their PR pitch to see what this type of new card looks like.
The Basic Vanilla Card
1. This card has the same interest rate for all transactions, whether purchases or cash advances.
Most credit cards have different rates for every kind of transaction. Most of the time, those fees are hidden in fine print and hard for customers to understand. For people who don’t carry balances, this isn’t much of an issue, but it’ll be helpful for those who do. This is the biggest plus of the card.
2. An interest rate of the U.S. Prime plus a margin of 14%.
I have a couple thoughts on this. First, that’s rather high. According to the Wall Street Journal, the current prime rate in the US is 3.25%. That means that currently, the interest on the card is 17.25%. But this is a card built for the everyday customer, not people with especially good credit, so maybe it makes sense.
Second, while the margin isn’t variable, it’ll stay at 14%, the rate is still variable based on the prime rate. Unfortunately, the average customer probably doesn’t keep track of the prime rate. They probably won’t be very aware of their interest rate if it varies, just like on other cards, where the rate varies for other reasons. Therefore, the “flat” margin is not actually an advantage.
3. No over-the-limit fee.
Mixed blessing. On the one hand over-the-limit fees can suck you dry. On the other, not charging some kind of fee for going over your limit encourages poor financial behavior.
(Despite the wording, if you kept going over your limit it’s likely they’d close your account.)
4. One flat fee of $39 for late payments.
That’s a hefty fee. Worse than many bank overdraft fees, better than some credit card fees. The PR release implies that this is the only negative consequence of late payments, as compared to, say, a rate jack.
My Take on the “Basic” Card
Well, it’s basic, I’ll give ’em that. If it’s really as straightforward as the pitch makes it sound, then that’s a real advantage. One of the worst things about credit cards is the complicated fine print and rules, which are hard for even savvy consumers to keep track of.
Nothing else about the card makes it a particularly good deal. The rate is higher than many and it’s variable based on something that the average consumer doesn’t keep track of (even if they should). The flat fee is easier to keep track of than a rate hike, but not a good fee.
Does the average American consumer deserve a good credit card? Probably not, actually. The ones who will handle their credit cards wisely will do as well with this kind of card as any other (though this one doesn’t have rewards). The others will do about as well with this card as others, perhaps better.
Note, I’m not promoting this card, it’s just the first basic/vanilla card that I’ve run across and I thought I’d share what this new kind of car looks like. Once more of them are out there, I’ll cover them a bit further.