Setting Fees and Terms
Late Fee. In addition to generating income and providing an incentive for timely payments, this fee can have a self-selecting effect: customers who pose
a greater credit risk are more likely to use cards that charge no late fee.
Overlimit Fee. The pros and cons of overlimit fees are similar to those for late fees. Typical overlimit fees vary accordingly.
Cash Advance Fee. This fee is usually a percentage of the transaction minimum to process a cash advance. Other banks do not institute such a fee as it may deter customers and the transaction is already very profitable as finance charges accrue immediately.
Grace Period. Banks generally offer cardholders a grace period for new purchases during which no finance charges accrue. Typically 25 days, this period starts when the statement is printed until the payment is due. Most banks do not offer a grace period on cash advances.
Other Fees. There are several other extra service fees you can charge including those for returned checks, duplicate cards, card replacement, and issuing a “rush” card.
Teaser Rates and Balance Transfers
Teaser rates are low rates offered as introductory incentives to cardholders. They are often used as attention-getters in advertising and direct mail. Since the rate is temporary, by law it must be made clear somewhere in the communication.
Teaser rates are used by some banks as the APR on their card to attract additional cardholders. They have also been effective as an incentive to transfer balances from competitors’ cards. That is, the customer currently carrying a high balance on ABC Bank’s card is invited to transfer the balance to a new card account opened at XYZ Bank. The APR on the new account is usually low – as much as eight points below the rate they are paying at ABC Bank. The introductory period could range from three to six months and will vary.
This use of teasers is a very attractive offer that persuades many cardholders to switch banks. It also attracts customers who tend to carry substantial balances and thus generate more revenue for the issuing bank. Some banks even offer a 25-day grace period before accruing finance charges on transferred balances.
*Check your state laws, which may govern credit card pricing. Before establishing pricing for your credit card products, check with your bank’s compliance officer to determine state and federal compliance.
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