Living with credit, New products

The gotcha-cha gives way to a new step

Fred Williams


Of all the words you could use to describe credit cards, these are two that you probably wouldn’t. But that may be changing.

I’m not suggesting that issuing banks have sworn off their tricks entirely, like a reformed sinner at a tent revival. The Credit CARD Act of 2009 rolled back only the most egregious “gotcha” moments. Calls for more consumer protection are bulging from a regulatory comment file, as card users still find plenty of practices they can shake a finger at.

But there are examples of cards embracing simplicity and transparency without regulatory prodding, even when it costs them some quick fees.

A prime example is Barclaycard’s Ring, which reached its first birthday in April. The novel card makes transparency a cornerstone of its strategy, going so far as to share monthly financial results with users. Cardholders also get to weigh in about fees. They recently discussed whether to hike the cash advance fee from $1 to $2 — in order to cut the foreign transaction fee to zero.  Interest on cash advances is the same eight percent as on purchases. If you’ve ever taken cash out with a credit card, you know what a deal that is.

In an online community, holders discuss how to manage the card with a level of engagement that has surprised Barclays. “I guess we were nervous of the question, will anybody want to talk about a credit card,” said Jared Young, senior director of consumer markets for Barclaycard US. “We may be giving them an outlet for years of frustration.”

Ring isn’t an outlet for many cardholders yet, however. With something around 11,000 users, the card has generated press clips out of proportion to its size.  More people apply for the card than are accepted,  as the Ring is designed for prime credit risks.

“An eight percent APR is going to require you to be judicious in your underwriting,” Young says with wry understatement.

Imitators do not seem to be springing up, at least not yet. So the innovative card still looks more like an experiment than the arrowhead of a trend line.

But look what else is happening in the card mainstream, as major issuers lift their heads from a formerly lucrative trough.

The ruckus around “payment protection” plans has died down since the Consumer Financial Protection Bureau issued fines for deceptive marketing last year to Discover and Capital One.  The products themselves were never called into question by the crackdown, just the deceptive marketing around them.

On the other hand, they never scored high as a consumer benefit either.  The Government Accountability Office said the typical payment-protection user paid about $200 a year and got little in return, what with complicated restrictions on benefit payments.

What payment protection plans did provide was a source of highly sought fee income for banks, with annual revenue of about $2.5 billion for the nine largest issuers. Nonetheless, most major issuers have stopped selling the controversial products — even those who were not subject to the regulatory crackdown.

One of the few issuers planning to resume selling add-ons is Discover, but that will be after a redesign, the company says. In the meantime, Discover is jumping on the customer-friendly bandwagon in a big way. Ads for its new card tout customer service by real people and anti-gotcha policies, such as the waiver of late fees for first-time offenders.

Back in 2011, Elizabeth Warren herself congratulated card issuers for going beyond the Credit CARD Act’s requirements in forgoing price hikes and surprise fees. Her brainchild, the Consumer Financial Protection Bureau, is working to institutionalize that behavior by making customer service a playing field where banks compete with each other, director Richard Cordray has said.

For one thing, the bureau’s trove of consumer complaints is published for all to see on its website, like a milder, digital version of the stocks that humiliated Puritan miscreants in the town square.Credit card complaints were the first to go up on public display, back in June of 2012. Card issuers can improve their image by resolving complaints faster and more fairly, and by getting fewer of them in the first place.

Maybe the stocks are one of those ideas that is more popular the second time around.


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