Citibank
Simplicity Visa No Late Fee Offer Hides Penalty Interest Rate

Credit card issuers have lately started advertising cards with no late fees, after surveys showed that people hate being charged them. Solicitations promising No Late Fees keep arriving. The most heavily pushed example, in print and on television, is the Citibank Simplicity Visa, advertised as free of late fees provided you use the card for a purchase every month.

What many people miss is that, instead of a late fee, the issuer applies a punishing interest rate when a payment arrives even one minute late. A rate of 13 or 14 percent can leap to roughly 30 percent, and sometimes 40. A missed payment also goes straight to the credit bureaus, which opens the door for your other lenders to apply a Universal Default Rate. If this offer reaches your mailbox, throw it away, because it sounds too good to be true.

Here is what I believe Citibank is after with this card. It is losing revenue and market share to home equity loans, since consumers borrow against their houses to retire expensive credit card balances, and this card is meant to rope people in and hold them hostage.

1) The ads carry the slogan that you pay no late fees as long as you buy something with the card each month. The suggestion is that one monthly purchase lets you pay late without any penalty. Nowhere do the ads mention the penalty rate that follows a single late payment, or that you will be reported to the credit bureau. Citibank counts on cardholders not reading the terms, as most do not. Once you pay late even one time, Citibank has ruined you and has a customer with no options except to pay whatever it charges.

2) Having paid late because of the impression the ad gave you, and without reading the cardholder agreement beforehand, you are now in default. Your rate goes to 31%, since the default rate is 24.99% plus the prime rate after a single late payment. Citibank also reports the late payment to the credit bureau right away, your FICO score falls to the sub-prime range, and the late mark on your report keeps any other lender from approving a new card to which you could move your balance. Citibank has then won, holding you where it wants you, ready to be exploited.

Other card companies may then apply their own Universal Default Rate clause, pushing your rates to 27% and beyond, all because Citibank reported you late.

My advice is to resist the advertising and not apply for this card. Citibank will wreck your finances, possibly on purpose, for instance by posting your payment a day late so that you land in default. This scheme is carefully designed, and most people never notice the hidden agenda built into the card.

Company: Citibank
Country: USA
Site: citibank.com

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