Beware of credit-card gimmicks that drive the cost of plastic up


New York -- Credit-card companies are all but standing on their heads to get your attention. But instead of reducing fees and interest rates (which would really get my attention), the stand-on-the-head types are smothering you in costly "enhancements." These gimmicks keep the price of credit cards up. What's more, they often sound better in the ads than is actually the case.

Take the "price-protection" plans now being used by a handful of issuers, including the giant Citibank. If you charge something to your Citibank Visa or MasterCard, then see the same product advertised at a lower price within 60 days, Citi will credit your account with the difference.

But you have to jump through hoops to get a refund. The lower price must be advertised in print, not on radio or TV; it cannot be a "close-out," "cash-only," "limited-quantity" or "going-out-of-business" sale; you have to document your purchase with both a store receipt and credit-card receipt; and the offer doesn't include a host of common purchases such as tickets, services, car rentals and hotels.

Refunds at Citibank are limited to $250 an item and $1,000 a year -- but normal clearance sales rarely save you anything like $250. Furthermore, you have to luck into having your particular purchase advertised in the newspapers. For all this, you pay Citi $20 annually for the card and a stiff 19.8 percent on unpaid balances. Citibank won't disclose the number of refunds it has paid so far.

Neither will the Valley National Bank of Arizona ($20 a year for the card, 19.8 percent interest), which introduced a similar price-guarantee plan last October. Valley National refunds the price difference on "new manufactured items purchased in the original factory-sealed packaging" if the same store or chain puts it on sale at a lower price within 60 days of the time you bought. The maximum refund: $100. (It takes a call to the bank to learn that new clothing is considered "factory-sealed.")

Question: Is it worth Valley National's high rate of interest to gamble on getting a refund? Not to me.

Another gimmick is "merchandise protection," offered by Citi, Chase Manhattan and many others. If a purchase you put on a card is lost, stolen or damaged within 90 days, the bank will repair or replace it -- with restrictions.

But what restrictions? Aha. That's a surprise, rarely mentioned in the ads. As with most enhancement deals, you see the fine print only when you sign up. At Chase and others, the bank won't pay until you've first gone through your home owner's policy. The maximum recovery: $500 per item. And since you can't predict what you're going to lose, you have to keep all store receipts as well as credit-card receipts, for 90 days, so you'll have the proof you need.

JTC These giveaways, by the way, can be changed, limited or canceled at any time. For example, Citibank is canceling its coverage for lost items and theft from vehicles.

If you're still ga-ga for gimmicks, skip the big banks in favor of Abbott Bank in Omaha. Its standard Visa or MasterCard comes with no annual fee, a 16.4 percent interest rate on unpaid balances, a 25-day grace period for paying bills, and plenty of bells and whistles: $500,000 in travel accident insurance, $25,000 in rental-car insurance, merchandise protection and extended warranties on products purchased with the card.

But lower-priced cards are generally harder to get than those that charge higher interest rates. So don't apply unless your credit history is good.

Cards that start cheap, incidentally, don't always stay that way. The issuer may get an extra percentage point out of you by changing the formula used to compute its interest rate.

Even more distressing, a low-rate card may be sold to a high-rate issuer. In January, for example, Norwest Bank of Des Moines bought the credit-card portfolio of the Connecticut National Bank. Norwest later raised the rate charged on unpaid balances from 15 percent to 19.8 percent, says Representative Charles E. Schumer, D-N.Y.

Schumer has proposed legislation requiring the buyers of card portfolios to (1) give you 30 days notice of a rise in rates and (2) let you cancel your card and pay off your debt at the old, lower rate. If you support that legislation, honk.

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