TD Bank says it is answering the objections of consumers who said they prefer simplicity over
In the first case, the Cherry Hill, New Jersey-based bank has created a Visa credit card called TD Clear. It does not carry interest or late fees, and instead charges consumers a monthly fee of $10 for a $1,000 credit line and $20 a month for a $2,000 credit line, TD announced on Tuesday.
The product, which TD says is an industry first, aims to replace confusion about interest or penalty fees with a set repayment approach that doesn't waver, Christopher Fred, TD's executive vice president and head of U.S. credit cards and unsecured lending, said in an interview.
"Research showed us there was a pretty sizable population of folks out there that are apprehensive about using 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 a lot 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 who make purchases with the card must pay a set minimum $35 monthly payment plus the $10 monthly fee on the $1,000 credit-limit card or $60 plus the $20 monthly fee on the $2,000 credit-limit card.
TD reports all card account data to the credit bureaus monthly, and eventually sends all accounts that go delinquent to collections. But because TD Clear targets consumers who are cautious or new to credit–or trying to build their credit–Fred expects consumers to be diligent about keeping their accounts current, even without the threat of late fees.
"We didn't necessarily start out here trying to become a competitor to installment loans, but what we did hear a lot about was this notion of control, predictability and understanding what people need to pay each month in order to budget," Fred said.
One credit card analyst said TD Clear is breaking some new ground, but it will face the usual challenges of any credit card targeting users new to credit that may have lower scores and riskier behavior.
"It's an interesting spin 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 advisory services and co-head of payments at Javelin Strategy & Research, of the interest-free credit card concept.
In addition to the interest-free card, TD is simultaneously rolling out a second new credit card called TD FlexPay that is more traditional, but takes some of the pain out of late fees and finance changes when consumers are unable to–or forget to–make monthly payments on outstanding card balances.
Six months after opening a TD FlexPay account, eligible consumers may opt to skip a payment once a year. Interest will accrue when TD FlexPay customers skip a payment, but the option can help consumers get through unusual periods of higher expenses or cash-flow shortages without incurring penalties, Fred said.
"The audience that FlexPay targets tends to be managing debt, paying interest, living paycheck to paycheck, and sometimes they just need to take a breath. Allowing them to skip a payment lets them rethink how they want to budget, and they've earned the right to do that," Fred said.
TD FlexPay customers also get their first late fee refunded every 12 billing cycles. While Fred acknowledged that credit card late fees typically play an important role in encouraging customers to pay their bills on time, many consumers occasionally get stung by simply forgetting the date.
TD FlexPay's late-fee forgiveness comes in the wake of the Consumer Financial Protection Bureau proposing earlier this year to
Neither of TD's newest credit cards offers rewards, but TD Bank at this time is also easing the rules on two of its other existing rewards-based credit cards. The 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 enables users to choose the categories each quarter where they can earn 3% cash back and 2% cash back, versus static categories of dining purchases and grocery purchases, respectively.
TD, which has assets of about $386 billion, plans to market its newest cards through its 1,100-plus U.S. branches and also online, with a digital-first approach to approving and distributing the cards, Fred said.
