A penalty-free credit card? Sure, but not everyone qualifies

Imagine a penalty-free credit card.

A little late with that payment? No problem.

Accidentally nudge above your limit? That's no problem either. And best of all -- no fees in either case.

The catch? You'll have to have awfully good credit to get one of these cards. Folks struggling to pay bills and getting hammered with hefty penalty fees aren't likely to qualify.

Nice deal -- if you can get it
Check out the Quantum Card, launched by MBNA in June. It charges no over-the-limit fees and no ATM transaction fees. Pricing for Quantum varies, but a typical offer features a 2.9 percent introductory rate followed by a 13.99 fixed annual percentage rate.

With personal travel planners, concierge services and credit lines of as much as $250,000, it's no surprise that Quantum Cards are not available to the general public. A press release for the card explains, "Quantum truly is only for the select few."

Chase Manhattan and Wachovia are going after a slightly less upper-crust crowd with their penalty-free credit card offers. People with good credit who carry balances and typically pay bills on time are target customers. In exchange for not having to worry about paying penalty fees, customers may have to pay annual fees or slightly higher interest rates.

Consider the Stress-Free Platinum Card from Chase. One version of the card comes with a $20 annual fee and a variable interest rate of The Wall Street Journal prime rate (currently 9.5 percent) plus 1.65 percent. The card charges no late, over-the-limit or cash-advance fees.

"It's for people who would rather not have that stress," says Judy Miller, a Chase spokeswoman.

Chase has been test-marketing the card since early 1999. Potential cardholders receive applications in the mail.

A card without hassles
Wachovia rolled out its No Hassle Visa Gold in summer 1999. It comes with no fees for late payments, cash advances and over-the-limit charges, and variable interest rates ranging from 12.5 percent to 14.5 percent.

"Consumers are in general very busy. The last thing they want to worry about is a complicated credit card deal," says Phil Christian, a senior vice president at Wachovia Bank Card Services. "They want something simple they can use."

Wachovia came up with the idea for a hassle-free card after asking consumers what ticked them off about credit cards. A common beef was confusing and supposedly low-rate credit card deals that didn't last.

"We've done a good job of making it complicated for consumers," Christian says.

"They want to understand the rules that they're playing with and sometimes it's unclear because it seems to change a lot."

Penalties go away -- for some
Another sore point with consumers was penalty fees. One consumer, who was proud of a good payment history, complained about being slammed with a high late fee when a payment arrived a day or two late. Another suspected that issuers were deliberately not opening their mail so they could make money off late fees.

While no issuer would ever admit doing such a thing, card companies' billing practices have come under fire in 2000. Both Citibank and Chase Manhattan have settled consumer class action lawsuits over payment processing practices in the past few months.

In fact, lots of card customers are plenty angry about what they consider unfair billing practices. A payment sent in two weeks early is billed as late. Payment due dates fall on Sundays or federal holidays.

Some issuers have early morning cut-off times for processing payments as well. Say an issuer has a cut-off time of 9 a.m. A payment received at 9:01 a.m. on its due date would be tagged late.

It's clear that penalty fees are big moneymakers for issuers. Bank card issuers made $5.5 billion in penalty fees in 1999, up from $4.8 billion in 1998, according to Credit Card Management Magazine. Ninety percent of those penalty fees were from late payments.

Late fees and over-the-limit fees of $29 are common. Some folks get slapped with sky-high penalty interest rates as well.

"It's just a gouge," says Patricia Sturdevant, executive director of the National Association of Consumer Advocates.

A start, but only that
With so much hoopla and hostility over charges and fees, penalty-free cards are a welcome change.

"I'm encouraged that some issuers are doing this. I think penalty fees are a disingenuous way of making money," says Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group. "I'm encouraged the marketplace is responding to pressure from lawsuits and consumer complaints."

But with all the money issuers make off penalty fees, it's hard to imagine issuers ever marketing penalty-free cards to a wide range of consumers.

So if you do happen to qualify for one of these cards, consider yourself lucky and may you never have to wrangle with a customer service rep again. People who live paycheck to paycheck and who really feel the sting of $29 penalty fees aren't likely to qualify.

"It doesn't sound like it will help very many people," Mierzwinski says. "And that's the bottom line."