Remember the good old days when free balance transfer credit cards – you know, the ones with 0% balance transfer rates and no balance transfer fees – were in abundance? We all thought such credit card offers went the way of pay phones and Polaroid film once the CARD Act took effect, as this law prohibited the type of “gotcha,” hair-trigger pricing that allowed issuers to make money off cards without obvious revenue-generating features. However, Discover and Chase recently resuscitated the free balance transfer with a pair of new offers, a development which begs the question: Are they here to stay?
A changing credit card environment
Back in the old days, credit card companies were able to offer cards with 0% intro rates and no transfer fees because such features largely served as bait soon to be followed by a switch. You see, issuers knew that a very high percentage of customers who opened such cards would inevitably miss a payment by a day, exceed their credit line by at least $1, or mistakenly use the card to make a purchase, allowing them to implement penalty rates and fees as well as an unfair payment allocation policy that forced consumers to pay off their highest-interest balances last.
As mentioned, this all changed with the passage of the CARD Act, which requires consumers to opt-in for the ability to exceed their credit limits, prohibits issuers from charging over-limit fees in excess of the amount by which cardholders go over limit, forbids issuers from increasing interest rates on existing balances unless cardholders are at least 60 days delinquent, and forces issuers to apply payment amounts above the minimum to the balance with the highest interest rate.
It is in this new environment that the Slate Card with No Balance Transfer Fee from Chase and the No Balance Transfer Fee Discover More Card are now being offered.
How will Chase and Discover profit?
Most of you probably don’t care if credit card companies profit, but when you consider the fact that whether these offers multiply or cease to exist depends on the fate of Chase and Discover’s experiments, the matter is likely of greater interest to you. What’s more, these companies have responsibilities to their shareholders, who certainly don’t want to see them offer money-pit products.
So, while we know Chase and Discover spent some dough developing these offers and are continuing to spend it on advertising in order to attract consumer interest, do they have a way to make money off products that most consumers will open just for the 0% introductory rates and close once these rates expire?
Well, both cards offer 0% introductory interest rates on purchases for the same length of time as their 0% intro balance transfer rates, which means profiting off purchase-borne interest revenue is out. The only valid hypothesis remaining is therefore the notion that Chase and Discover are betting on consumers having balances remaining when their 0% rates give way to much higher regular rates.
This, of course, would allow the issuers to rake in interest revenue until customers either pay off or transfer their remaining balances. That’s quite the gamble because as long as the economy is doing well, there will be a plethora of 0% balance transfer credit cards available to serve as life rafts of sorts for indebted consumers looking for low interest rates to keep them afloat.
Perhaps Chase and Discover know something the rest of us don’t or maybe they are offering such remarkable rates simply to gain some public favor. Maybe they’re hoping that catchy advertising will lure new customers in droves and the hassle of switching service providers will lead most of them to stay. Whatever the hypothesis may be, I don’t buy that this is a viable and profitable strategy, so take advantage of these cards while they last.