With Bank of America’s (Stock Quote: BAC) announcement this week that it’s offering a new credit card with one rate for all transactions, the trend toward simpler credit card deals is gathering strength.
One look at the Bank of America deal shows that the new card could be a real game changer, helping signify a new age of no-frills plastic. Besides BofA, JP Morgan Chase (Stock Quote: JPM) has rolled out its new Blueprint Card, which gives card members flexibility in how they pay their credit card balances.
Why the sudden shifting to simplicity? In a word or so, a shrinking market for credit cards. Americans have been so rattled by high card debt during the recession that they’ve begun to shun their plastic.
According to a May 2009 study by financial industry research firm Mintel, more than two of five adults report that they’re turning toward “pay-as-you-go” debit cards and away from “buy-now-and-pay-later” credit cards. Overall, 83% of survey respondents told Mintel they have changed their spending habits due to the economy.
"The recession has truly jolted American spending, causing people to cut back on purchases and conduct their finances more conservatively," said Stephen Clifford, vice president of financial services at Mintel. "To avoid taking on more debt, many people have changed their payment habits, choosing debit over credit cards for greater control."
Thus, the move toward lower-frills cards. Exhibit A is Bank of America’s Basic card, which is set to hit the market in October. The Basic has a single rate feature that covers traditionally different card transactions like balance transfers and cash advances. The rate’s formula is fairly straightforward – the prime rate (at 3.25% in September) plus up to 14%. If card consumers are late in paying their monthly bill, Bank of America will slap them with a single late payment charge of $39. In addition, the rate won’t change based on the customer’s payment history or credit rating.