Romancing the credit-card holder
Congress is looking hard at how credit-card issuers do business. Issuers are responding with sweeter deals.
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But the industry "has to be able to price for the risk" taken with what are, in effect, unsecured loans, notes Ken Clayton, managing director of card policy at the American Bankers Association. "When a consumer we lend to poses a credit risk, we want to [be able to] price that [risk] appropriately. That means higher-risk people bear higher costs, while lower-risk people – which are the majority of Americans – bear lower costs."
To Mr. Clayton, the industry is "more than willing" to work with policymakers to "address concerns without bringing unintended consequences." These could include "higher costs for consumers and reduced access to credit."
But for now, anyway, cardholders seem to be enjoying some unusual opportunities, especially while uncertainty prevails over what Washington might do.
In light of the current political climate, consumers themselves may be able to win better card terms, suggests Arnold of CardRatings.com. "If you have an interest rate you consider high and a good credit score, this would be a great time to ask your card issuer for a lower rate. While the industry is under the gun, you're more likely to get these types of concessions," he says.
How to find the best card deals
Credit cards may come with some dire-sounding fees and practices – names like "universal default" or "trailing interest." But on the brighter side, many offerings also have tantalizing attractions – such as no annual fee, low or 0 percent introductory interest rates, and alluring rewards programs, such as cash-back and airline-travel benefits.
And some offerings have eye-opening perks: Take, for instance, the new Motiva credit card that Discover Financial Services unveiled this year. Users who carry a balance from month to month are rewarded for paying their bills on time. Specifically, when cardholders make on-time payments for six consecutive months, they get back, in cash, their next month's interest as reward. In addition, cardholders get a cash-back bonus of up to 1 percent on all purchases made with the card.
In 2006, American Express rolled out its Clear credit card. This "no fee" offering – no annual, late, or over-the-limit fees – also provides what the company calls "a generous and automatic rewards program." It includes "valuable financial management tools" as well, the company says.
Such multifeatured cards can be ideal for consumers "who don't want a bunch of fees, but still want rewards," says Desiree Fish, a spokeswoman for American Express.
With so many cards available today, consumers may lack the time to sift through the crowded field. Happily, some websites – among them, Bankrate.com, CardRatings.com, and CardTrak.com – can help.
In addition, consumers can visit Consumer Action (CA) online at www.consumer-action.org. Its 2007 Credit Card Survey, for example (the link is currently posted on their home page), lists which card issuers use what kinds of fees and other charges. The report also names the 10 cards in CA's survey with the lowest interest rates.
