Travel and Entertainment Credit Cards

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Today you can use travel and entertainment (T&E) cards, which in- dude the American Express, Carte Blanche, and Diners Club cards, for lots more than travel or entertainment. Back in ancient days (the fifties) T&E cards could be used only for eating out and charging hotel and travel expenses. Today all sorts of stores take these cards, but the old name lives on.

Two important differences between T&E cards and other credit cards are:

1. T&E cards let you have only very short-term credit. The longest period of credit you can get with the most common T&E cards is just under two months.

2. You are not charged direct interest on the credit you do get from them.

Don’t worry about the T&E companies, though; they have other ways of making out.

With T&E cards you theoretically must pay up within thirty or so days of the time you get your bill. So the most time you can have be fore you must pay for something you charge on a T&E card is just under two months. You get that much time if you charge something the day after billing closes for the month. For example, you charge 50 on May 1, assuming the credit card company closes its statements on the last day of each month. The May 1 charge will not be billed to you until May 31 and you will be in good standing even if you don’t pay until the last day of June. This is the same way the free- ride period works with cards that let you extend your payments over a longer time.

There are ways to legitimately extend your payments for a longer time, but they involve special programs and are not a part of the standard features of T&E cards. Paying under these special programs will also have you paying interest. The American Express Optima card is an example of one such program.

The T&E card companies have three ways of making the most of their money. First, they charge you a hefty annual fee, from $55 on up. The T&E annual fee is really an interest charge, one that is very high when you do not charge a lot. The fee stays the same no matter how much you charge with a T&E card.

Second, they charge the merchants a remarkably large percentage of any purchase made on the card, up to 10 percent of the sale. This is much more than any other type of card charges the merchant. These rates have dropped a bit as the T&Eers have sought to extend merchant acceptance of their cards.

Third, they do not pay the merchants immediately, sometimes playing the float, holding the merchants’ money for up to thirty days.

Advantages of T&E Cards. Prestige is the big advantage of these cards—that is, if you are into prestige and if you really believe that a piece of plastic can make you a more loved person. The T&E companies spend millions to convince us that paying the bar tab with their card will cause the world to look on us more favorably. Unfortunately, this doesn’t look to be true. Where I come from, just paying the bar tab makes the world look on you most favorably. The form of payment is your business.

Other T&E card advantages are maybe a little more real than prestige:

• “Country club” billing, where you get a copy of the actual charge slip you signed at the store instead of a computer printout of what the credit card companies claim you have to pay. However, Diners just eliminated this, and American Express sends computer-printed copies of the slips rather than the originals.

• A somewhat better level of service. On the average, T&E customer contact folks seem to be a little more on the ball than folks at the banks. (This is not such high praise, but it is praise).

• Toll-free 800 numbers to call up with your billing problems. The only problem is that calling will not protect your credit card user rights. For that you have to send a letter. So if you use the 800 number and things do not get fixed, you are out of luck, legally speaking.

• Special services to card users when they travel. American Express appears to really deliver on this. It will cash checks, hold mail, and re place lost or stolen cards fast (seven minutes is the record so far as I know, with overnight par for the course) for Amexco card users in the United States and abroad. Do not expect this kind of action from a bank card or from the other T&E cards.

• No preset spending limit. That means that they do not have a fixed credit limit of, say, $2,500, as a bank card does. Note that “no preset spending limit” does not mean no limit. Your charging patterns are monitored by the T&E company. If there is a big change in your pattern of spending or if your charges start to get outside the area that the company thinks you can pay back, you will find your leash quickly yanked.

Say one dreary winter month you decide to take off, leave your job as auditor for the North Alaska Pipeline and Trapping Corporation, and live it up in Key West , Florida , first class all the way. Before you get up to the first $10,000 in charges, American Express will be contacting you to inquire (politely at first) if someone has stolen your card. Or to ask just why you are charging $900 a day instead of your usual average of $12.43.

No preset limit does not mean no limit. No matter what the T&E card folks try to imply.

Disadvantages of T&E Cards. First, of course, is the hefty annual fee. Second is the inability to extend payments in an emergency without a big hassle. You can negotiate extended payments with a T&E company if you can think of a reason the company likes. It is not too difficult if you have a previously good payment record. But with a bank card you have the right to extend payment, which can be a fine thing if you have good self-control. Some folks do like the financial discipline that the “pay it all every month” T&E card forces on them.

Third, you may get a not-so-great foreign exchange rate with T&E cards when they are used abroad, although the bank cards are catching up with the T&E cards on this by raising costs on foreign charges.

Fourth, you cannot use T&E cards at nearly as many places as you can use bank cards. Mostly, you are limited to the more expensive shops and restaurants. Discount retailers rarely take T&E cards. They cannot afford to pay the steep commission the T&E companies would charge them. For example, the remarkable 99 Cents Only stores of southern California take only MasterCard and Visa. The manager of one such store told me that they had looked into accepting other cards, but it was just too costly for them.

Fifth, it may be difficult and costly to get a cash advance on a T&E card. Often it is impossible. You can cash checks at T&E company offices around the world (if you can find one, which, except for American Express, may be difficult) but you cannot get actual cash on the card itself. Diners does let you get cash on your card, but charges very steep fees. And it has a limited number of affiliated offices where you can actually get cash.

Sixth, the number of T&E offices is limited. American Express has by far the most around the world, but even it comes nowhere near matching the number of banks at which a bank-type credit card can be used for, say, cash advances. But I admit, if I’m going to have my card stolen in Milan, Italy, I’d probably get a new card a lot faster from American Express than I would from the First National Bath of Buncum.


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Wednesday, December 17, 2008 20:44