Christine Muschi/Bloomberg
TD Bank says it is responding to objections from consumers who said they prefer simplicity over credit card terms that may seem complex launching two cards: one that eliminates interest and another that gives cash-strapped consumers a periodic break on payments and fees.
In the first case, the Cherry Hill, New Jersey-based bank has created a Visa credit card called TD Clear. It carries no interest or late fees and instead charges consumers a $10 monthly fee for a $1,000 line of credit and $20 a month for a $2,000 line of credit, TD announced Tuesday.
The product, which TD says is an industry first, aims to replace confusion about interest or penalties with a fixed payment approach that doesn’t waver, said Christopher Fred, TD’s executive vice president and head of credit cards. and US unsecured loans. an interview.
“The research showed us that there was a fairly sizeable population of people who were afraid to use credit cards because of things like average daily balances, the need to calculate interest and figure out how to pay off the loan, and they wanted something much clearer.” Fred said.
TD Clear customers must pay the monthly fee whether or not they use the card. At the end of each billing cycle, regardless of how much they spend, customers making purchases on the card must pay a fixed minimum monthly payment of $35 plus the $10 monthly fee on the $1,000 credit limit card or $60 plus fee $10 monthly on $2,000 credit limit card.
TD reports all card account data to the credit bureaus on a monthly basis and eventually submits all delinquent accounts for collection. But because TD Clear targets consumers who are cautious or new to credit, or trying to build their credit, Fred hopes consumers will be diligent about keeping their accounts current, even without the threat of late fees. .
“We didn’t necessarily start here trying to become a competitor to installment loans, but what we did hear a lot about was this notion of control and predictability and understanding what people have to pay each month to be able to budget,” Fred said. .
A credit card analyst said TD Clear is breaking new ground, but it will face the usual challenges of any credit card aimed at new-to-credit users who may have lower scores and riskier behavior.
“It’s an interesting twist on the basic credit card, but any product with low or no interest carries higher risk, and the issuer will need to keep a close eye on operating costs,” said Brian Riley, director of credit counseling services and co – Responsible for payments at Javelin Strategy & Research, for the interest-free credit card concept.
In addition to the interest-free card, TD is simultaneously launching a second new credit card called TD FlexPay that’s more traditional, but takes some of the pain out of late fees and financial changes when consumers can’t, or feel they forget to do it. make monthly payments on outstanding card balances.
Six months after opening a TD FlexPay account, eligible consumers can choose to skip a payment once a year. Interest will accrue when TD FlexPay customers miss a payment, but the option can help consumers get through unusual periods of higher spending or tight cash flow without incurring penalties, Fred said.
“FlexPay’s target audience tends to manage debt, pay interest, live paycheck to paycheck, and sometimes just need to take a breather. Allowing them to skip a payment allows them to rethink how they want to budget, and they’ve earned the right to do that,” said Fred.
TD FlexPay customers are also refunded their first late fee every twelve billing cycles. While Fred recognized that credit card late fees often play an important role in encouraging customers to pay their bills on time, many consumers sometimes get upset simply by forgetting the date.
TD FlexPay’s late fee waiver comes after the Consumer Financial Protection Bureau proposed earlier this year Cut credit card late fees to as little as $8. The industry standard is $29 for the first late credit card payment. Banking trade groups opposing the plan in March have requested an extension to June on comments on the bureau’s proposal.
None of TD’s newer credit cards offer rewards, but TD Bank is also relaxing the rules on two of its other existing rewards-based credit cards right now. Bank’s TD Double Up now offers 2% cash back on all purchases, eliminating the previous requirement to redeem rewards through a separate TD bank account. And the TD Cash card now allows users to choose the categories each quarter in which they can earn 3% cash back and 2% cash back, compared to the static categories of restaurant purchases and grocery purchases , respectively.
TD, which has assets of about $386 billion, plans to market its newest cards through its more than 1,100 US branches and also online, using a digital-first approach to approving and distributing the cards, it said. Fred.