Straight Talk from Al Jacobs
BE CAREFUL OF WHAT YOU RECEIVE
A distinctive red, white and blue envelope arrived in the mail today. What more appropriate colors might you expect from Bank of America (BOA)? But even more welcome is the message boldly displayed in prominent font: “An exciting opportunity …0% intro APR on purchases and qualifying balance transfers for 15 billing cycles”
The enclosed brochure is headed with “Get the credit card that works as hard as you,” and then describes the benefits: “At Bank of America, we understand how hard you work to be successful. And that’s why we are giving you the opportunity to receive this offer for … bla … bla … ad infinitum.” A little farther down it assures you of “Savings that work for you. Start with a 0% intro APR for 15 billing cycles … after that a Variable APR that’s currently 21.74% will apply.” When you get to the back page you’ll discover the rate for bank cash advances are 26.74% and should you be a touch late with a payment you’ll be paying interest of 29.99%. However, the final lines of the promotional mail out assure you “Hard work deserves to be rewarded. Don’t miss out on this special offer. Take advantage today.”
The reason the 0% intro APR is displayed on the envelope is because it’s specifically aimed at those persons who habitually don’t pay full credit card balances each month, and are thereby assessed interest. BOA expects most of the new customers they attract will be paying double digit interest to them after the 15 introductory billing cycles. You might note that if you have a BOA savings account, you will receive interest from them at an annual rate of 0.04% (four one-hundredths of one percent). This is essentially a cash advance to the bank … analogous to the bank’s cash advance to you at the 26.74% rate mentioned above. Thus, if you loan the bank $50,000 for a full year, they will pay you $20; if they loan $50,000 to you, you will pay them $13,370. Do you suppose this may in some small way explain how BOA managed to generate $18.23 billion net income in 2017?
A final thought: In the Aeneid, in the year 19 BC, the Roman poet Virgil, tells the story of the wooden horse of Troy, used by the Greeks to trick their way into the city. His line “Beware of Greeks bearing gifts” is revered to this day. Perhaps if Virgil were once again alive, he might pen a similar warning: “Beware of banks bearing gifts.”