Credit-Card Solicitations Are Full of Naughty Surprises

This is a tale of two solicitations for credit cards with no annual fee. The lesson to be learned: Surprises may lurk in all. One credit card offer, from Bank of America (BAC), is riddled with fees and catches. Our other credit-card solicitation, from Capital One, appears to be a "no-hassle" deal.

A chief drawback to the Bank of America offer: You don't even know whether your interest rate will be 7.9 percent, 13.99 percent or 19.99 percent before you apply. It's "based on your creditworthiness."

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There's up to a 29.99 percent rate if you pay late or exceed the credit limit. That's on top of the late-payment fee, which can range from $15 to $39, based on your outstanding balance. There's even a minimum $10 fee for balance transfers and if you use the credit card to purchase lottery tickets, casino gaming chips, money orders and foreign currency or travelers checks "from a non-financial institution." In addition it charges a 3 percent transaction fee for any transaction made in foreign currency.

The Capital One offer boasts no cash advance fee, late payment fee, over-the-credit-limit fee, balance transfer fee or foreign exchange fee. "We will never increase your APRs (annual percentage rate) simply because you pay late or go over your credit limit," the solicitation promises.

But Mitch Uretsky, managing associate with credit-card consultant Auriemma Consulting, Westbury, N.Y., says there may be other catches with "no-hassle" cards.

"They do their homework and know their credit profiles," he says. "One way or another, they'll make back their margin."

Major problem: Not every fee or pricing wrinkle is required to be disclosed in Schumer's Box, the federally mandated easy-to-read informational box required with every credit-card solicitation. Yet, cardholders may be charged in increasingly complex ways.

The U.S. Government Accountability Office could not determine the number of cards that assessed fees for a telephone payment, duplicate copy of a statement or rush delivery fees for credit cards in 2005. The reason, according to its recent study: "These fees are not required to be disclosed..."

Who knows how many other fees go undisclosed?

The GAO study reports that card issuers offering no fees may impose a higher interest rate. Indeed, Capital One's no-fee solicitation charged a high 18.24 percent. But, oddly, it targeted a cardholder who pays within the grace period, and incurs no interest.

Banks are counting on the fact that they will get increased interchange income from merchants, which can run as much as 5 percent per transaction. Plus they are searching for aggressive cross-selling opportunities, Uretsky observes. Once a bank gets your credit-card business, it might try to aggressively push a home-equity loan or car loan.

What's hidden in your fine print?

Is your interest rate unusually low on a "no-hassle, no-fee" credit card offer? Search for things like steep balance-transfer fees, Uretsky advises. Going by the wayside are waived balance-transfer fees with 0 percent interest rates. Say you transferred your $10,000 balance to a lower-rate credit card: The new issuer may charge a 3 percent fee. That's $300!

In addition, most card issuers apply your monthly payments to balances with lower credit-card rates before higher rates. Once you use your card, this could rack up a lot more interest than you might think!

Some wrinkles on Capital One's "no-hassle" card. The rate is variable, with no limit as to how high it can go, except for interest-rate caps mandated by state law. Also, the card issuer may change terms of the account at any time. "If we increase our APRs for any reason other than the increase in prime rate, we will notify you in advance of your options in writing including the right to opt out," it says.

Catch 22: The GAO reports the average household credit card debt runs $2,200 -- an amount many may not be able to pay off immediately.

Pam Girardo, a spokeswoman for Capital One, acknowledges that with a rate change, balances not paid off by the close of the billing cycle would be subject to the new terms.

She says the card charges a $10 to $14.95 fee if you pay by phone, with the higher fee charged if you talk to a live person rather than going through its automated system. There is a $3 fee if you request a copy of your statement and a $16 to $20 fee to expedite delivery of a new card. Not long ago, free overnight delivery of new cards was the norm.

One other issue: The Capital One card has no preset spending limit. But it has the right to decline any charge, including those exceeding the credit line.

If this happens while you're entertaining clients in a restaurant, Uretsky suggests, even a no-hassle card could become a huge hassle!

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