Capital One Sued Over Alleged “No Hassle” Hassles
The lawsuit’s claims boil down to this: Capital One committed fraud by failing to mention prominently in its ads that the “No-Hassle” credit card is only No Hassle if you pay your bill on time.
Capital One advertises that its No-Hassle card – the card of choice for rampaging Vikings – bears a fixed 4.99% interest rate. Like virtually all other credit card issuers, Capital One applies a much higher default rate to accounts that are overdue or have exceeded their pre-determined credit limits. Capital One set the default rate on the No-Hassle cards as high as 27%, depending on the account.
Capital One extends its low fixed interest rate described in the ads to customers whose accounts are in good standing only. Minnesota Attorney General Mike Hatch claims that the Capital One advertisements amount to outright consumer fraud because they failed to address this default policy.
Many Capital One No-Hassle Card holders failed to make timely payments and had their cards placed under default status. Some anecdotal evidence indicates the percentage of accounts in default could have reached as high as 40%.
Cardholders (and apparently the Minnesota Attorney General) confused the term “fixed rate” with “permanent rate.”
To refresh your memory, the term “fixed rate” indicates that the credit card’s interest rate does not track changes in the prime rate. In contrast to fixed rates, “variable rate” cards set the interest rate as the prime rate plus some percentage. If the prime rate increases, a fixed rate card’s interest remains constant, whereas the variable rate card’s interest increases. While the term “fixed rate” does imply some sense of constancy, by no means is a fixed rate permanent. For a further explanation, take a gander at our Credit Card FAQ.
The lawsuit also contends that the disclaimers in the No Hassle Card’s television ads are illegible. While the television disclaimers may indeed be illegible, why should anyone expect a credit card company to squeeze their entire set of terms & conditions into a 30 second ad? What really matters is what’s written on the application, not the advertisements. And there’s certainly nothing illegible or unclear about the disclosure “boxes” that federal law requires must be included with every credit card application. The federally-mandated boxes look something like this example:
|
Annual percentage rate |
11.9% |
|
Other APRs |
Cash-advance APR: 15.9% |
|
Variable-rate informtion |
Your APR for purchase transactions may vary. |
|
Grace period for repyament |
25 days on average |
|
Method of computing the |
Average daily balance (excluding new |
|
Annual fees |
None |
|
Minimum finance charge |
$.50 |
|
Transaction fee for cash advances: 3% of the amount advanced |
|
|
* Explanation of penalty. If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply. |
|
Aside from consumers paying their bills on time, this entire lawsuit could have been avoided if consumers had taken a brief moment to understand credit terminology and actually read the credit disclosures. While this lawsuit may eventually allow cardholders in Minnesota to weasel out of the expensive consequences of their poor payment histories, cardholders everywhere else will be unaffected.
No matter what credit card you use, the keys to a no hassle credit experience are simple: educate yourself, read the fine print, and above all, pay your bill on time!
