The Awful Truth About Credit Card Payments

Feb. 24, 2010 — -- Credit card bills arriving in consumers' mailboxes this month will have a little something extra – extra information, that is. Thanks to the new federal rules that took effect Monday, card companies must now clearly show consumers how long it will take for them to pay off their balances if they make only the minimum payments. Card statements must also show how much a consumer would have to pay each month to zero their total balance within three years.

But at least one major bank has let its customers -- at least those who diligently searched its Web site -- in on the importance of making more than your minimum credit card payment long before Congress approved the new rules last year. A page on the Web site for North Carolina-based BB&T, which the bank says has been up since late 2008, includes an article dedicated to encouraging consumers to make more than their minimum monthly card payments along with examples of balances and payment schedules. (See the page here.)

Credit card companies, the article notes, make minimum payments "low enough to … seem attractive" and adds that "[p]aying more than the monthly minimum will eliminate the balance much faster, save you considerable interest charges, and provide some peace of mind knowing you are taking a prudent action."

Coming from a bank, that sort of advice is "more than unusual," said credit card expert Curtis Arnold. "It's unheard of."

To understand why this is remarkable, remember that banks and credit card companies derive much of their revenue from charging interest rates on revolving balances – that is, balances that consumers carry over from month to month instead of paying in full. The longer a consumer takes to pay off a balance, the more interest they pay. It's why card companies have famously labeled those who pay their balances in full each month as "deadbeats" – they may be among card companies' least profitable customers.

Consumer-Friendly Reputation

BB&T, the country's 17th largest bank according to 2009 data from the Federal Reserve, issues one consumer credit card as well as business credit cards. By encouraging customers to pay more of their balances sooner, experts say the bank was, at least in the short run, promoting behavior that was against its best interests.

BB&T says it's all about educating its consumers.

"One of our goals is to make our clients' financial dreams come true so to speak and the way to do that is to provide them with the best financial education we can give them," said spokeswoman Merrie Tolbert. The importance of exceeding minimum payments and other advice on the BB&T Web site, she said, is "paramount for our clients to understand what they need to do in order to be financially savvy."

Credit card industry watchers say that if any banks were going to be this forthcoming with consumers, it makes sense that BB&T would be one of them.

"I applaud them for being so honest -- that's kind of BB&T's reputation," said John Ulzheimer, the president of consumer education for the Web site Credit.com. "Even though they're a big bank, they do have more of a consumer-focused reputation anyway."

"It would have surprised me if I'd seen it at other bank, not so much at BB&T," said Jennifer Thompson, a senior analyst at the investment research firm Portales Partners. "BB&T has always had a reputation for being a straight shooter, I think that they're very vocal about creating value for their customers and doing the right thing and that's part of their whole image."

But BB&T may be in a better position to encourage responsible card payments thans larger rivals. Thompson said that BB&T's credit card business represents a miniscule portion -- less than 2 percent -- of its more than $100 billion total portfolio. Compare that to JPMorgan Chase – the country's second-largest bank by assets, according to the Fed – where the credit card business comprises some 10 percent of the bank's portfolio.

"Obviously, it's not as a big a profit-driver as it is for some of the larger banks," Thompson said.

Less Risk for BB&T Credit Card Sector?

BB&T may also face less risk in its credit card business than its larger peers because the bank mainly markets its cards among existing customers instead of soliciting business from consumers at large.

"When you have a banking relationship, (the bank) knows more about you," said Schwark Satyavolu, the co-founder of the credit card comparison Web site BillShrink.com. "They have your bank account and they can assess risk a lot better because you have to go through a lot of credit checks to open a bank account as well."

BB&T's charge-off rate – the rate at which they must write off defaulted credit card loans – may reflect this advantage: For the 2009 fiscal year, it was less than 5 percent. For FDIC-insured banks overall, Thompson said, that figure was 9 percent.

Eschewing the mass marketing strategies of larger banks hasn't stopped BB&T's credit card business from growing: Its credit card portfolio grew from $1.25 billion in late 2008 to $1.7 billion last year, though Thompson notes that some of that growth might be attributed to BB&T's purchases of other banks.

So does all this mean that credit card users should get on the BB&T band wagon? It depends on what you're looking for, card experts say.

Curtis Arnold, the founder of the credit card comparison Web site CardRatings.com, says that where BB&T's flagship Visa card stands out is its interest rates. Depending on your credit history, you could secure a variable rate between 8.15 and 14.15 percent, he said. The bank also offers fixed-rate credit cards, which, since the establishment of new credit card rules, have largely been abandoned by other banks.

The card also doesn't have a penalty rate for late payments.

"This is a best-kept-secret kind of thing," Arnold said.

Where the BB&T card lags behind others is in its rewards program, he said. Consumers pay a $9 annual fee to participate in the program – some other cards don't charge for their rewards programs—and you can't necessarily buy much with your rewards points. Arnold said that, under BB&T's program, 2,000 points only yield a $10 gift card – in a better rewards program, the gift card might be double that amount.

"They say (they have) superior rewards in their marketing -- I don't buy that at all," he said.

BB&T Visa Card May Be No Easy Get

As with most other cards, there's no guarantee that applying for a BB&T card will actually get you one. With a card with rates as competitive as BB&T's, getting approval from the bank could prove even harder, Arnold said.

"If your credit is average," he said, "you're probably not going to qualify."

Credt.com's Ulzheimer said that lately, BB&T isn't the only bank going above and beyond when it comes to credit card disclosures. Bank of America, he said, recently sent information to its customers delineating credit card interest rates and fees in a summary that exceeded the requirements set by the new card rules.

The summary "does do pretty good job of being more transparent," he said. "I know everyone likes to throw those guys under the bus, but it's nice to acknowledge when they do something right."