Paolo von Schirach
May 10, 2013
WASHINGTON – In order to avoid more disasters like those caused by the sub prime mortgages given to practically anybody during the fun, go-go years of the housing bubble, we talk a great deal about protecting unaware customers from similar easy money schemes. Indeed, especially when it comes to financial industry products, customers should know exactly what they are buying, on what terms, and what the risks are. In other words, no more fine print, with the scary details buried at the bottom of page 15 of an otherwise incomprehensible (to the layman) 20 pages agreement.
Customer protection
Fine. Forewarned, as they say, is forearmed. Well, it would be nice if this “customer protection” approach would be extended to other financial services products, such as “zero per cent interest” balance transfer offers, now quite common. Very briefly, credit card customers are enticed to transfer balances from other accounts on which they pay high interest to an account on which they pay zero, yes zero, interest. There is a fee associated with the transaction, usually 3 or 4%. Still, the offer may look quite enticing. Even considering the transaction cost, nothing beats what amounts to a zero per cent interest loan.
Yes, these offers are great. Except for one thing. They last only for a limited time. Anywhere between 9 to 15 months, or so. And here is the rub. After some checking I ascertained that the financial institutions offering these “deals” as a rule, when they send theirs statements to the customers who took advantage of these good offers, provide no reminder about the expiration date of the “sweet deals”.
Expiration date
Theoretically, of course, the borrowers should remember that expiration date, and plan their monthly payments accordingly. But, without any written reminder about the when the offer will end, inevitably many will forget. And so, after having made the easy minimum payments for a number of months, one day they discover that the zero per cent grace period expired; and so they are hit with regular interest rates, (may be 14 or even 15%) on what is still a huge balance.
For many people this may amount to a personal financial crisis. But the sudden surprise could be easily eliminated if the lenders would provide regular reminders, to be included in the monthly statements, about the expiration date of the zero per cent offer. This simple “warning” would put the borrowers on notice. If, warnings and reminders notwithstanding, the borrower fails to plan, then it is his/her problem.
No reminders
But many financial institutions, as a rule, provide no such reminders. And why not? I guess I know the reason why. Just like in the case of the teaser interest rates in the now infamous sub prime era, the credit card issuers count on people forgetting when the easy zero per cent will expire. And when the regular 13 to 15% regular interest rates kick in, the borrower is stuck, while the bank starts making real money on the residual, often quite substantial, balances.
The cost of ink
When asked why their banks provides no warning to the customer about the date in which the zero interest will expire, most customer representatives had no answer.
Well, one of them, in an inspired moment of creativity, had an answer. He replied that the bank could not possibly do this, because adding a warning line to the printed statement would cost money. “You have to consider the substantial cost of ink” he said. And he was not joking.
“So, dear customer, we are really sorry that we cannot warn you as to when your deal will expire. But, what can we do. Our hands are tied. We’ve got to keep our costs under control. And the price of ink being what it is, we really have no choice”.
It was all about the price of ink
This is serious folks. Maybe we should have a federal tax rebate for ink costs incurred by credit card companies for the additional line of print, so that consumers can receive a written warning about the expiration date of the “zero per cent” offer. What do you know. You start speculating about bankers greed and other dark motives, and then it was all about (the obviously prohibitive) cost of ink.