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February 2013

Be Careful About Deferred-interest Credit Cards

Millions of Americans purchased Christmas gift items using deferred-interest credit cards offered by retailers such as Wal-Mart, Amazon, Apple, Home Depot, and Office Depot. These cards allow consumers to pay for furniture, electronics, and other purchases interest-free for a set time period, but consumers who fail to pay off their purchase in full by the end of the promotional period must pay interest on the entire amount, including amounts they have already paid. In addition, many of the cards include high backdated interest charges that can exceed 25 percent per year.

Deferred-interest credit cards concerned me during my years with Wisconsin’s Consumer Protection Bureau because many consumers told me that they didn’t understand that one late payment could create a large and unexpected interest charge. We investigated several companies offering this type of credit extension because the advertising wasn’t clear or, even worse, was intentionally misleading. This seemed to clean up the problems for a while, but we suspected it would be a matter of time before it would re-appear since this is a great way for merchants to entice consumers to buy a high-cost item because no payment is required upfront.

For the majority of consumers who pay off the item on time, this can be a very good deal. However, consumer advocates such as the National Consumer Law Center are now calling for a ban on deferred-interest cards because they believe federal regulators have failed to write necessary rules restricting such cards as intended by Congress when it passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. This, they argue, leaves consumers vulnerable to dishonest or misleading advertising.

Consumers should only buy a large-ticket item on a deferred-interest card if they know they will have the money to pay it off before the promotional period ends. Consumers should also consider obtaining a regular credit card from a credit union because some offer a similar promotional interest-rate period without the possibility of retroactively charging interest on already paid balances.

5-Hour Energy Accused of False Advertising

My October 2012 column focused in part on the truthfulness of energy-drink advertising and I noted in the article that New York’s attorney general had launched an investigation into alleged false advertising.

Now, the Better Business Bureau’s National Advertising Division is investigating the truthfulness of claims being made by the makers of 5-Hour Energy. According to press reports, the Better Business Bureau has asked 5-Hour Energy to stop advertising that there is “no crash” following product use because a clinical trial done by the product’s makers five years ago demonstrated this is not true. This investigation is in addition to a November 2012 decision by the U.S. Food & Drug Administration (FDA) to investigate reports of 13 deaths in the past four years following consumption of 5-Hour Energy and five deaths following consumption of energy drinks sold by Monster Beverage.

My caution from the October column is still the same: Parents and other guardians should keep these drinks out of the hands of children to ensure they are not misused. These caffeinated beverages are not the same as commonly used sports drinks like Gatorade and should be handled differently, particularly when the young person cannot properly evaluate the risks from overuse.


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