It’s a classic makeup story. Credit card users got burned by the issuers deceptive ways and now the lenders are trying to win them back, to show them that they’ve changed and everything is going to be different this time around, Baby, honest. The home-wrecker: wildly fluctuating interest rates, stealthy fees and a general mysteriousness regarding how much and why the cardholder pays up. While Chase is taking the “Let’s make a plan to get better” approach with its all new Blueprint, Bank of America is making a resolution to be more straightforward with its new Basic Visa card. Coming to a wallet near you in October, the BankAmerica Basic Visa card is designed to meet “consumer demand for a card that offers the convenience of credit with simplified rates and terms.” Whether this new forthcoming model proves to be trick or treat remains to be scene. But let’s unwrap what’s on the table so far.
One Rate to Rule Them All
One of the most confounding qualities of typical credit cards is their two-, sometimes three- or four-faced nature when it comes to interest rates. The APR most often advertised was the one that applied to normal purchases (i.e. online purchases, swiped POS sales, etc.). For balance transfers, cash advances and other types of credit, there was a different (often higher) interest rate. To make matters worse, card issuers applied your payments to the lower interest rate first, meaning your high interest rate balance would have a much longer life (thus a much higher finance charge) than your normal purchases. All that changes in February 2010, though – and BankAmerica’s Basic Visa makes preemptive amends with its one rate for all types of balances.
BankAmerica Basic Visa lists the single interest rate as one of its key features, describing it as follows:
The interest rate is the same for all transactions, including purchases and cash advances, making it easy for customers to keep track of their interest rate at any given time.
Sounds swell. Coupled with the CARD Act’s restriction on adjusting your interest rate without 45 days notice, this will take much of the uncertainty out of carrying a balance. But how is that one interest rate determined? It all has to do with the prime rate.
The prime rate, or the prime lending rate, is the current going rate that the major banks are charging their most creditworthy customers. You’re probaby just about sick of hearing the word “subprime” but that term comes from the same “prime” that goes into the prime rate (i.e. subprime = not so creditworthy). The most widely referenced prime rate is published by the Wall Street Journal and is kept current online by WSJ and the Federal Reserve. As of this posting, the rate is 3.25%.
The interest rate on your BankAmerica Basic Visa will be the prime rate plus a margin of 14 percent. So, you could end up with a maximum of 17.25% interest rate. The only way the rate can change is if the prime rate changes. So, for example, if the prime rate goes up to 4.00%, your BankAmerica Basic Visa will be at a max of 18.00% APR. If it gets cut to 2.50%, then your BankAmerica Basic Visa has to drop below 16.50%.
And that’s the only way your rate will change, according to Bank of America. If your credit score takes a hit or you miss a payment, your rate does not go up.
Late Fees and Missed Payments
With the BankAmerica Basic Visa, there are no fees for going over-the-limit. This, of course, is pursuant to the CARD Act and is contrast to traditional setups that charged a fee for every over-the-limit transaction (which can really add up). Late fees are at a fixed amount of $39. Not bad.
Rewards, Protection and Other Features
Bank of America new Basic card also has Total Security Protection® to protect against fraud and the usual online banking services from Bank of America. Cardholders will also have a chance to earn up to 20% cashback with Add It Up, which gives you varying amounts of cashback for making online purchases through partnered retailers. Nothing new here.
Bank of America also makes a note to point out its “easy- to-understand, single-page disclosure” which will lay out all these terms and conditions.We’ll have to wait until then to get our hands on it – but it’s single-page format will make it (hopefully) less labor intensive to dissect.
The idea of a credit card for dummies with clear terms and an easy-to-understand interest rate formula is nice, but it’s important to note that this is, in essence, a variable interest rate card. And it’s also important to remember that we are currently sitting in the crater left behind by a massive economic fallout – meaning prime rates are at historic lows. An interest rate of 17.25% isn’t bad for now – but once the economy starts rebounding and that rate climbs back up, you’ll easily see interest rates breaching the 20.00% mark.
What are your thoughts? Would you be interested in a more “basic” credit card? Or do you prefer to trust your own instincts when shopping for credit cards?
Read the official press release from Bank of America.
Image by Omar Omar