Kathy Kristoff: 'No-interest' deals often too good to be true
Ablang
Personal Finance by Kathy Kristoff
Tucson, Arizona | Published: 05.18.2008
When Best Buy offered Mike Walker the chance to take home a television
set and make no payments, interest or otherwise, for 12 months, it
seemed like a great deal.
Walker had shopped with Best Buy for years and had great faith in the
retailer, so he barely glanced at the 13-page booklet that came with
his new Best Buy credit card. It wasn't until a few weeks ago — when
the 12 months were nearly up — that he found the catch.
The company had been tracking the "deferred" interest on his
outstanding balance. If any balance remained on the card at the end of
the 12 months, Best Buy would retroactively charge him interest for
the whole year.
"I'd been slowly paying down the balance, thinking that I would owe
interest on whatever amount I had left on the card at the end of the
no-interest period," Walker said. "But that's not what they do. This
'no interest for 12 months' isn't what it seems."
A Best Buy spokeswoman said the company wasn't hiding anything, and
that if Walker had read the paperwork he would have known what he was
getting into.
Walker acknowledged that Best Buy had in fact made full disclosure,
though in the fine print. The big print said "no interest," he said,
and nobody called the fine print to his attention.
"They're creating a trap for people."
Consumer advocates agreed — adding that it is a common trap.
Buy-now, pay-later come-ons are a popular way to get consumers to part
with cash that they haven't quite earned yet, said Gail Hillebrand,
staff attorney with Consumers Union in San Francisco.
"These programs pay off for the credit companies because people get
stuck in them," she said. "It's very dangerous to think that you are
one of the few people who won't get tricked."
Fly now, pay later
American Airlines, for example, has a fly-now, pay-later program that
offers six months of "no payments, no interest." Read the fine print
and you'll find that finance charges accrue on the promotional balance
at rates as high as 25.96 percent from Day One. If the entire balance
isn't paid in full by the end of the promotion period, the carrier's
paperwork says, "Finance charges for the entire promotional period
will be added to your account."
The same essential pitch is made by many retailers, including Guitar
Center, Sears, Office Max, Home Depot and Ethan Allen: Big letters
proclaim that the credit is free, and small letters note when and how
the company can take that promise away.
Even if the print were bigger, people might not understand the offer,
Hillebrand said.
"It is hard to imagine a disclosure that could effectively communicate
that 'this deal is not what we claim it is,' " she said. "People think
that zero means zero."
The interest charges are nothing to sneeze at. The bulk of the
advertised offers note that the interest, when charged, ranges from 20
percent to 26 percent, turning a $1,000 purchase into more than a
$1,200 debt.
It's worth mentioning that there are numerous efforts afoot to curb
what regulators are calling "abusive and misleading" credit-marketing
tactics. Bank, thrift and credit union regulators proposed rules
recently that would bar some retroactive rate increases on credit
cards and stop banks from charging customers late fees when they send
their bills out too late for the consumer to return a payment in time.
In addition, Rep. Carolyn Maloney, D-N.Y., and Sen. Christopher Dodd,
D-Conn., have introduced legislation that would ban retroactive rate
increases, provide warning for future rate increases and demand better
credit-card billing practices and disclosures.
Misplaced trust in Best Buy
None of the proposals would curb the "zero interest" deals that have
Walker riled.
What gets to the Los Angeles businessman most is that he so trusted
Best Buy that he didn't have his guard up.
"If a credit-card company approaches me, I am really leery," he said.
"But when I am dealing with (what) I think is an upstanding consumer
retail store, I'm not looking for a trap. When I find out they're as
duplicitous as the credit-card company, that's what I don't like."
Best Buy spokeswoman Kelly Groehler said she was sorry that Walker was
dissatisfied but added that the terms of the deal were spelled out in
the contract.
In fact, people walking into a retail store may have to be more
cautious about applying for credit than those walking into a bank or
responding to a credit-card solicitation by mail, said Bill Hardekopf,
chief executive of credit-card shopping site LowCards.com.
"Retail cards tend to be costlier than normal credit cards, even
though they look great," he said.
They tend to charge higher interest rates than multipurpose cards,
such as Visa and MasterCard accounts issued by banks, and have just as
many fees and traps, he said. "You've got to read the disclosures. All
of them. Even if you have to take them home with you to do it."
That's particularly challenging when somebody is trying to talk you
into an impulse purchase, Hardekopf acknowledged. But it's far less
costly than finding out later that your no-interest deal dramatically
boosted the price of your TV.
What do you do if you already bought and now realize you can't pay in
time?
Consider transferring the balance, said Ben Woolsey, director of
marketing and consumer search at CreditCards.com. Some card companies
offer promotional deals in which they don't charge for balance
transfers — and they might provide a promotional rate for a set time,
too, making it easier to pay the balance.
But before you switch, read the fine print.
"You need to be cautious and suspicious of everything," Hardekopf
warned.
Al Bundy
> Kathy Kristoff: 'No-interest' deals often too good to be true
> Personal Finance by Kathy Kristoff
> Tucson, Arizona | Published: 05.18.2008
I had hoped you forgot about this group with your mindless long posts,
but I guess our number came up.
Ablang
I knew an operator at the plant that bought a car on this premise. It
Turned out exactly the same way for him and he now owes more for the
Car than he paid for it, if that makes sense. Obviously it does to the
Lender. Credit is a trap that has to be dealt with swiftly. i.e. don't
Charge more than you can pay at the end of the month. Remember the
Default rate ? There was NO definition of what a default rate is in
The contract, you just have to be bitten once to find out. Times that
By every individual in the country and it spells big bux for the CC
Companies. A sheep in wolves clothing and buyer beware.
========================================================================
Kathy Kristoff: 'No-interest' deals often too good to be true
Personal Finance by Kathy Kristoff
Tucson, Arizona | Published: 05.18.2008
When Best Buy offered Mike Walker the chance to take home a television
set
and make no payments, interest or otherwise, for 12 months, it seemed
like a
great deal.
Walker had shopped with Best Buy for years and had great faith in the
retailer, so he barely glanced at the 13-page booklet that came with
his new
Best Buy credit card. It wasn't until a few weeks ago - when the 12
months
were nearly up - that he found the catch.
The company had been tracking the "deferred" interest on his
outstanding
balance. If any balance remained on the card at the end of the 12
months,
Best Buy would retroactively charge him interest for the whole year.
"I'd been slowly paying down the balance, thinking that I would owe
interest
on whatever amount I had left on the card at the end of the no-
interest
period," Walker said. "But that's not what they do. This 'no interest
for 12
months' isn't what it seems."
A Best Buy spokeswoman said the company wasn't hiding anything, and
that if
Walker had read the paperwork he would have known what he was getting
into.
Walker acknowledged that Best Buy had in fact made full disclosure,
though
in the fine print. The big print said "no interest," he said, and
nobody
called the fine print to his attention.
"They're creating a trap for people."
Consumer advocates agreed - adding that it is a common trap.
promotional deals in which they don't charge for balance transfers -