Bank Credit Cards

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Bank cards are the most common and useful credit cards. Visa and MasterCard are the two most common bank cards. To get a Visa or MasterCard you must deal with a financial institution that is a member of the Visa or MasterCard organizations. While Visa and Master Card are called bank cards, you can get them from savings and loan associations, credit unions, and several other sorts of organizations. Initially the cards were called bank cards because they came only from banks. The name has stuck.

You get a bank card from an issuing bank or other organization. You can never get a card from the Visa or MasterCard organizations. They handle many of the operations that make the bank card systems run. But they do not issue cards. Visa and MasterCard started out as sort of co-ops run by bankers for their mutual benefit, but now they are so successful, big, and powerful that some think they may, at times, be pushing around the members who purportedly run the credit card show, especially the smaller members.

Each financial institution sets its own terms for the cards it issues. Two Visa cards may look exactly alike, but be very different in cost and in the benefits that come with them. The Visa card from Bank A may have a $40 annual fee, carry a 21 percent annual interest rate and a 3 percent cash advance fee, and have a grace period of only fifteen days after you are billed for making payments before you have to pay interest. Bank B’s Visa card might have no annual fee, a 12 percent annual interest rate, no cash advance fee, and a grace period of twenty-five days. They both say VISA in big letters. But Bank B’s card is a much better deal. The key point to remember about Visa and Master Card plastic is that each bank sets the charges for using the cards it puts out, so one Visa card may have terms very different from those of a Visa card issued by another bank. The same is true of benefits and services. One MasterCard may offer special insurance for car rentals paid for with that card while a MasterCard from another bank may have no such insurance. You have to check each card out individually.

So you must shop for the best possible price and terms on your bank card. Unfortunately, the financial institutions that issue cards don’t make shopping easy. In fact, they go out of their way to make it difficult. Card marketers today often emphasize unimportant features, such as the purported prestige of the platinum card, or make claims like: “Call us twenty-four hours a day” or “Credit limit increase re quests responded to within ten minutes.” Much more important are the fees and interest charges associated with the card. These are usually not featured in advertising or direct mail solicitations, or if they are, one low charge is featured without any more than the minimal, legally required mention of other important charges. Advertising is not usually a good guide to the value of a card.

The Discover card put out by Dean Witter, Discover & Company (founder Sears sold out years ago) is a kind of bank card, although Discover uses a maze of different companies (such as Novus Services, Inc.) to run the Discover card business. You can use a Discover card at Sears and at lots and lots of other stores, although not quite so many as Visa or MasterCard. But the Discover card has gone a long way toward being as widely accepted as the other cards.

Right now, only Discover issues Discover cards. And right now, there is no annual fee for the Discover card. Discover has pointedly made no promises about not charging annual fees in the future and has started selling “Private Issue” cards that do have an annual fee. In my opinion, Discover has a history of charging very high interest rates and of using expensive, anti-consumer methods of computing interest rates. Discover has also sent out thousands of “preapproved” card solicitations and then refused to honor those “preapproved” offers, claiming “computer error.”

Advantages of Bank Cards. The big advantage of bank cards is their very wide acceptance. Visa and MasterCard can be used at more stores and banks in the United States and abroad than any other kind of card, mostly because it costs the merchant less to take a Visa or MasterCard than to take cards such as American Express or Diners, which usually charge the merchant a much higher commission.

The annual bank card fee is usually much lower than that charged by the T&E cards, or there may be no annual fee. In fact, the only bank card you may need to pay a fee for is one that offers a big, valuable extra, generally frequent-flier miles or some other sort of bonus. Al most all the airlines have an affiliated bank-issued Visa or MasterCard program (Delta’s is an Optima card from American Express, which, because it lets cardholders carry a balance, is closer to a bank card than a T&E card) that lets you get frequent-flier miles for every dollar charged. Run up 25,000 miles and you can take a free flight in the continental United States . Rack up lots more miles and you may get a free trip to Europe , depending on the airline. Obviously these cards are good deals if you run a lot of money through your account and pay off the balance every month (thus avoiding the very high interest charges of most of these cards), getting bonus miles for every charge. They’re not so good if you don’t charge so much because you may never get enough miles for a free trip before the miles expire (after three years under many of the airline programs).

Bank cards can also be used to get a cash advance (that means loan) at many banks around the world, but beware the many possible hid den costs—for example, the notorious cash advance fee and instantly accruing interest. Fortunately there are a few cards without such a fee; check Money or some other personal finance magazine for possibilities or use Links / Resources. Card issuer USAA Federal Savings Bank (800-922-9092) has a good history of not charging cash advance fees.

With a bank card, because they are accepted in so many places, you can charge almost everything you buy and benefit from playing the float (float is the use of money you get when you borrow and don’t have to pay interest for a period). You can pay for everything with one check, rather than writing out many checks. You also benefit from having all your purchases listed and totaled for you. This can be a great convenience for your record-keeping and to help you keep track of things for tax and other reasons. And the statements provide proof of purchase and of the date of purchase for warranty purposes.

Disadvantages of Bank Cards . First, for some bank cards, you must pay an annual fee. Happily this is the one bank card fee which is disappearing (frequent-flier cards are the exception here; they have kept annual fees), due to changes in the industry brought on by the AT&T Universal Card and others who in the early 1990s started promoting “no annual fee” and “no annual fee for life” as a way to win over card users to their new card programs and to induce them to transfer those profitable, interest-generating balances from other cards.

Second, exactly because bank cards are so widely accepted and therefore so useful, they can be very dangerous. You can end up charging all sorts of things you ultimately cannot pay for — and at all kinds of places. So can a crook who finds a way to access your account. That is trouble!

Third, bank card customer service tends to be several notches down from that of travel and entertainment cards (discussed below) and at least some store cards. If you have a simple problem with a bank card, such as a billing error overcharge for a hotel room in Las Vegas, it may be more difficult to get it resolved than it would be with, say, a T&E Or store card. (Not that T&E, store, or bank cards win big prizes for solving even slightly complex problems.)

Fourth, interest rates on bank cards can be, and mostly are, unreason ably high. Banks are making huge profits from super-high interest charges on card accounts. They are not inclined to change their ways. Congress has looked into the problem, but so far, the political clout of the banks has kept any controls on rip-off card interest rates from passage.

Fifth, fees other than annual fees, many of which are rather complex and hidden (late fees, overlimit fees, bad check fees, statement copy fees), lurk in the shadows waiting to jump out and bite the unwary bank card user. The banks won a huge victory in the 1996 Supreme Court case of Smiley v. Citibank (116 S.Ct. 1730); according to the decision in this case, an out-of-state bank can evade many of the consumer protection laws of the cardholder’s home state. Congress should really address this issue with a change in the law. Why should a bank in, say, South Dakota be allowed to charge a $35 late payment fee to someone who lives in another state, a state whose laws limit late payment fees to $5? There is no good reason. But now you know why banks are running to notoriously anti-consumer states such as South Dakota and Delaware to set up subsidiary banks that actually issue their cards. For example, if you have a card from Citibank, it probably does not come from New York , where Citibank is headquartered, but from Citibank ( South Dakota ), a special credit card bank in that state.


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Wednesday, December 17, 2008 20:40