New credit card aims to minimize 'gotchas'
NEW YORK (AP) — It's a credit card that grants three wishes.
Citigroup on Monday plans to launch a credit card that marries a trio of perks — no late fees, no penalty rate and a single interest rate for purchases, balance transfers and cash advances.
The revamped Simplicity card will be marketed to those who are juggling busy schedules and want a credit card with simple terms, said Jud Linville, CEO of Citi Cards. "It lets them not have to worry that they're going to be late on a payment. It provides some flexibility," he said.
But as attractive as the card's features may sound, there are a few reasons to think twice before applying.
One of the biggest drawbacks is the card's 16.99 percent interest rate. That's higher than the average rate on the market of 14.40 percent last week, according to Bankrate.com, which tracks financial data. So if you're prompt with payments but tend to carry a balance, a low interest rate is likely a bigger priority than the perks offered by Citi's new card.
The Simplicity card also doesn't offer any rewards, which can be a deal breaker for some. Or it may turn out you won't qualify for the card. Citi declined to specify what type of credit background is required. But CardHub.com, which lets consumers search and compare card offers, lists the Simplicity card for those with "excellent" scores of 720 or higher.
Citi, which has been testing the card on the market in the weeks ahead of its official launch, is nevertheless betting that the combination of perks will attract consumers.
"The value is not having the surprises," Linville said. "In exchange, you have an upfront, transparent fee that's a little bit higher."
Even on their own, the features offered by the card can be difficult to come by. According to CardHub.com, less than 5 percent of cards don't charge a late fee. Only 8 percent charge a single interest rate for purchases, balance transfers and cash advances. Thirty percent of cards don't charge a penalty interest rate, but the figure is skewed because affinity cards, such as those issued by universities, do not have penalty rates.
Customers who have the older version of the Simplicity card won't automatically receive this new model. But cardholders can call customer service to see if they qualify for a switch.
The revamped card comes at a time when issuers are facing a new regulatory environment. A new federal agency for policing financial products, the Consumer Financial Protection Bureau, officially opened its doors just last week. The agency has said a top priority will be making credit card agreements easier to read.
Additionally, sweeping regulations that went into effect last year have curbed many of the questionable billing practices in the industry. For example, card issuers can no longer hike interest rates on existing balances. They can raise rates as much as they like going forward, but are required to give customers 45 days notice. Late fees are also capped at $25 per violation.
Linville notes that the Simplicity card was redesigned with the intent of such regulations in mind. That meant getting rid of "gotchas" such as late fees and penalty rates, he said.
He also noted that the struggling economy has made consumers more acutely aware of card terms. Linville said that's led to a greater demand for better products.