Do consumers really need more plastic choices?
Or .... Do consumers need more education on payment and debt management ?
Strangely enough the answer to both is YES!
The plastic choices emerging in the marketplace today, if properly understood and managed, will enable consumers to exercise greater control over personal financial decisions.
For example, tens of thousands of consumers are using debit cards right now to purchase groceries, gasoline, and other goodies normally paid with cash or checks. Debit cards are essentially electronic checkbooks. (Typically, there is a three-day float period between the date of transaction and its posting to the cardholder's checking account.) If the debit card carries the VISA or MasterCard logo it is accepted at nearly 9.5 million locations worldwide, just as many as a VISA or MasterCard credit card.
The growth in VISA and MasterCard debit cards will be significant with more than 100 million to be issued within the next five years. Fueling the rapid growth is the advancement in processing technology, allowing debit cardholders to pay for purchases in less time than it takes to write a check. However, it may take consumers three to four years to acclimate to debit cards, about the same time frame it took Americans to warm up to using automatic teller machines.
To equip the next generation of consumers to be understand payment choices and to make better personal financial decisions, VISA U.S.A. has developed a high tech learning package for high school seniors called Choices & Decisions. The program challenges students with real-life financial goals, situations, and options. The learning package teaches comparison shopping, budgeting, and managing checking and credit card accounts. Students also learn the consequences of their financial decisions, understanding how to make trade- offs, and handle unforeseen setbacks.
This is undoubtedly one of the best financial education programs to come down the pike in a long time. VISA teamed up with Lucasfilm Learning to develop this highly visual learning module which requires a computer and a laserdisc player/monitor. There is nothing boring about the presentation. The interactive video is upbeat with a contemporary feel.
Choice & Decisions features a 12 chapter lesson plan and is designed to be easily integrated into the high school curriculum. VISA consulted advisers from the education, consumer affairs, and financial communities to assemble the program. The learning package has been fully tested in schools with different socioeconomic student mixtures throughout the country in 1991.
The program is available to schools through local financial institutions who are members of VISA. To locate the local sponsoring institution or to learn more about Choice & Decisions call (800) 235-3580.
Consumers with excellent credit track records and annual incomes above $25,000 should not pass up the bargains offered on page 7 of this newsletter. Twenty eight issuers now offer gold VISA or MasterCards with no annual fee to the general public. Many more are offered by invitation only or through closed programs like credit unions. Interestingly, most of the no-fee gold cards listed in this newsletter offer below average interest rates.
No annual fee gold cards are true gems. Gold cardholders receive a minimum $5,000 credit line, an extensive package of perks, and access to priority customer service, all for free.
One issuer, Amalgamated Trust (Illinois), sweetens the pot more by not charging cash advance fees, late payment fees, over-limit fees or returned check fees. If you're still not impressed, consider Amalgamated's variable interest rate: 11.00% (Prime +4.0%). Even though applications are accepted nationally, the bank is very selective. (In 1991 Amalgamated charged off 1.0% of its card loans and experienced a delinquency rate of just 0.4%. Last year, the average charge off rate in the industry was 4.9% and delinquencies averaged about 3.5%.)
First State Bank (Delaware) is now offering the lowest rate available nationally to consumers with new or poor credit. The new card carries a 12.99% interest rate, which is far below the average secured card rate of 19.12%. However, the annual fee is a steep $75.00 for this new program, which means it is not a bargain for everyone. First State also offers an 18.99% APR secured card with a $35 annual fee.
Cardholders depositing less than $ 1,000 will find First State's 18.99% card with a $35 annual fee to be a better deal. By contrast, a cardholder maintaining an average daily balance of $3,000 will save $140 annually over the bank's 18.99% secured program.
First State charges a $35 application fee, pays 4.0% interest on the deposited amount exceeding $500, and does not offer a grace period on purchases. For more information call (800) 262-3610.
Signet Bank (Virginia), a major issuer of unsecured cards and a newcomer to secured cards, has decided to drop its $30 application fee totally and lower the required minimum deposit from $500 to $300. Signet charges an interest rate of 19.80%, has a $20 annual fee, and pays 5.0% on the deposit.
Signet's program now duplicates the pricing of another secured card program run by the nation's largest issuer of VISA and MasterCards, Citibank. Citibank charges an interest rate of 19.80%, has a $20 annual fee, and no application fee. However, Citibank has a slight edge since it pays 6.0% on the deposit in a special CD while Signet offers a 5.0% rate, compounded quarterly.
Signet and Citibank both launched secured programs late last year. For more information call Signet Bank 800-333-7116; Citibank 800-743-1332.
The secured card industry is much different today than it was two years ago. The stigma surrounding secured cards is quickly dissipating. VISA and MasterCard have aggressively monitored secured card programs, banning the use of 900 telephone numbers, specifying full disclosure of all account terms, and requiring the registration of all outside marketing agents for secured card issuers. The entrance of major issuers like Citibank, Signet, and Bank One, offering competitive terms, is helping to raise consumer awareness to the diversity of secured card programs available today.
