I thought it would be beneficial to take a close look at this offer and use it to help educate readers about what to look for and how the marketing message and reality can be two completely different things.
Once we finish reviewing this offer you will find that rather than a great tool to help you to get out of debt, the offer actually encourages you to use the line of credit to go even further into debt.
“Or think about taking that well-earned vacation or remodeling your kitchen. Then request any amount up to $50,000.” – From debt consolidation offer.
The Debt Consolidation Offer Envelope
It was the envelope that caught my eye and made me wonder. I could see from the back of the envelope that the mailer was from Bank of America but the front had some interesting statements:
- One Phone Call
- One Predictable Monthly Payment
- One Fast Way
- to help you get out of debt.
Of the marketing inducements made on the envelope I knew that only one of the four items was probably true, “One Phone Call”. The rest were probably very stretched statements at best or just simply outright deceptions.
The envelope says “One Predictable Monthly Payment” but the details on the inside tell me that the interest rate offered is variable and can be adjusted regularly and go way up.
“We may adjust your APR on a monthly basis due to changes to the Prime Rate.”
“Repayment term and payment amount are estimates which may change if, for example: your APR changes, you make late or partial payments, we access fees, you enroll in Credit Protection, or you take additional advances.”
So how can my monthly payment be predictable if the interest rate is variable and we already know that the Prime Rate will almost certainly go up from the low today? It would be ridiculous for Bank of America to say that the supporting fact for their statement is that the monthly payment can be predictable because they have a formula to calculate it.
The statement is obviously designed to make you believe that it will be a fixed monthly payment in the enclosed offer.
Is the statement “One Fast Way” true? I’m honestly not sure because while taking Bank of America up on their offer by filling out a few lines or calling them might get you approved fast, it would be a bold stretch of the imagination to say that this loan will get you out of debt faster unless you are currently being charged much higher interest rates.
The issue here is that when we get to the stuffer inside the envelope you will see that Bank of America is advertising an 8.99% interest rate but they also say that the rate could be up to 21.99% interest.
It is likely that the higher interest rate will be extended to someone that has a poorer credit report or a lower credit score. That means that for the person that might already have higher interest rates because of their credit, then they will most likely get an initial interest rate that is higher, or up to 21.99%.
Making a blanket statement that taking advantage of the Bank of America CleenSweep debt consolidation plan is going to get you out of debt faster is grand hyperbole. There is no way of knowing if you would even get out of debt faster even with the initial minimum APR since the rate is variable rather than fixed and it is impossible to predict what changes to the interest rate will be during the period of repayment.
The bolded statement “to help you get out of debt” is a wish at best. Taking advantage of this offer does not mean that you will get out of debt. in fact, if you use the credit to pay off other debts then rather than getting out of debt you are simply trading one debt for another.
I am sure that Bank of America would argue that by taking advantage of this variable interest rate offer that is subject to penalty interest rates of 27.99% and other fees and charges, that it is possible for someone to get out of debt. Yes, but not until the entire loan is repaid, and at what total cost?
The Debt Consolidation Offer – Front
Below you will see the top part of the front side of the Bank of America CleanSweep Debt Consolidation Plan offer.
Let me first start with the asterisks and referenced statements and then we’ll get to specific statements made in the offer.
Next to the statement “A loan amount up to $50,000″ there is an asterisk that refers to the following clarification.
Approved accounts will have a credit line between $500 and $50,000 based on creditworthiness.
Next to “..pay off high interest rate debt” there is an mark that refers you to this statement.
We may prohibit use of this account to pay off or pay down any account issued by FIA Card Services, N.A.
FIA Card Services is the name taken by MBNA when it became a subsidiary of Bank of America. So this means that even if some of your debt is debt now owned by Bank of America, they may prevent you from paying a debt off owned by Bank of America so this offer can’t be used to shift just any debt. Does this mean that even though I might have a higher interest rate debt with Bank of America that they’d prevent me from consolidating that debt into this offer, why yes it does.
So let’s turn back to the offer again. On the left we see a series of bullet points that Bank of America wants to draw your attention to.
Even though this offer is sent in the guise of being a debt consolidation plan and a prudent financial tool to help you to get out of debt, let’s look twice at one bullet point in particular.
So while you may be approved for up to $50,000 you don’t actually need to use the money to get out of debt or reduce your liabilities, you are being openly told that you could use the money to go further into debt.
So this statement and inducement does not make this offer a benevolent gesture by Bank of America to help the consumer to better handle their finances in these troubled times. It is designed to allow Bank of America to also extend even more debt, to get you further into debt, even though it is called a debt consolidation plan and promoted on the envelope to help you get out of debt.
I’ve highlighted some of the statements on the front that got my attention. Let’s look at those.
“There’s never been a faster, easier way to get the extra cash you need to help pay off high-interest debt or to use however you decide”
That is just a blatantly false statement. The majority of credit offers sent can be approved over the phone in a short amount of time. How is this offer faster?
“…for a loan up to $50,000.”
So how is it that I’m getting out of debt by swapping one loan for another and we now from looking at the asterisk that our approved credit limit may be as low as $500.
“Or think about taking that well-earned vacation or renovating your kitchen.”
Here we are back to the encouragement to not use this credit offer to get out of debt but in fact to do just the opposite.
“APR increases or additional advances will lengthen term or increase payments.”
So this isn’t even close to being a fixed monthly payment debt reduction offer if when the APR changes, which it will, it will cause my payments to increase and the repayment period to become longer. There isn’t anything that is set in stone that I, as a consumer, could depend on to judge what my monthly obligation would be under this credit offer, even though there is a large and nicely presented table. The table is irrelevant to the final terms and interest rate fluctuations over the life of the loan.
“All payment amounts and terms above are estimate based on an APR of 8.99%. Your APR may be higher.”
If 8.99% is the best interest rate to be offered then the majority of people taking advantage of this offer will have a interest rate higher than 8.99%. Think about it like this, only the select group, the best credit people will actually get the best interest rate. So all the rest will get a rate between 8.99% and 21.99%. If the majority of people will get a rate higher than the interest rate used to calculate the repayment table, it make the figures used in the table inaccurate and not representative for the majority of new customers. I wonder what percentage of people that receive this offer will actually get the 8.99% rate? Logic would make me believe that that number will be the minority of all acceptances.
“…the U.S. Prime Rate applicable using this formula was 5.00% and the APR range was 8.99% to 21.99%. We may adjust your APR on a monthly basis due to changes to the Prime Rate. For approved accounts, we also reserve the right to change your APR, fees or other credit terms at our discretion. Additionally, if you fail to pay your minimum monthly payment by its Payment Due Date on any two occasions within 12 consecutive months, we may increase your APR up to a Default APR of 27.99%, which will no longer be variable.
I hope you saw what I consider to be on of the most important statements made in this offer, we also reserve the right to change your APR, fees or other credit terms at our discretion.
When you take Bank of America up on this offer, you are giving up all control and all future certainty to what this offer will cost you over the life of your repayments. There is nothing that is fixed or predictable about this offer, even though that is what is promoted. Let me be clear, Bank of America is clearly stating that they can change everything about this agreement at any time and for any reason and you will be bound by those new terms.
“You will pay a 3% transaction fee on each advance (minimum fee $5; there is no maximum)”
If you were approved for the entire $50,000 then you would have to pay a fee of $1,500 to consolidate your debts into this offer.
I must point out a critical and very important part of this part of the application.
“BY SUBMITTING THIS APPLICATION I AGREE TO THE CONDITIONS ON THE REVERSE SIDE OF THIS FORM AND TO BE BOUND BY THE TERMS OF THE ACCOUNT AGREEMENT, INCLUDING ARBITRATION, WHICH WILL BE DELIVERED TO ME BEFORE USING THIS ACCOUNT.“
This simple little statement could be the subject of an entire article in itself. An unsophisticated or desperate consumer in debt may simply take advantage of what appears to be a predictable monthly payment debt consolidation loan to get out of debt.
But this offer and application does not contain all of the terms of this loan and you won’t get those terms that you will be legally bound to or see them until you apply for the account and are approved. How can anyone make a fully informed decision about the merits of this debt consolidation loan offer without seeing all the terms?
Credit card companies have been under a lot of heat about their binding arbitration clauses in the credit card agreements. If there is a dispute under this agreement and you challenge it the case will not be handled by the court, but by an arbitrator appointed by the creditor. For more information about the unfairness of arbitration and the reality of fair and accurate representation of the consumer, read Banks vs. Consumers (Guess Who Wins).
In the interest of actually finishing this review I’m going to skip reviewing the very short application part of the front of this offer and move onto the back. In a future review I’ll concentrate on the application part of another credit offer.
The Debt Consolidation Offer – Back
The back of the offer consists of two parts. The top part is a continuation of the marketing message and the bottom half contains mostly terms and some marketing messages. The top half is below.
I’m already getting weary of pointing out all of the inconsistencies of this offer but here are some more.
“If you like, we can pay your others creditors directly, deposit the funds right into your checking account, or send you blank checks to use as you please.”
So now we learn that not only can we use the debt consolidation offer to take a vacation but that Bank of America will even send you blank checks to use as you please, and not just to get out of debt or to consolidate your debt or to lower your payments. If you take on new debt through this offer, your overall debt payments actually go up.
“The funds have a reaccess feature, so you can ask us to “refill” your account up to your available credit line over and over as you pay it off.”
I’m confused how a loan marketed as a plan or way to get out of debt, really gets you out of debt if you can just keep adding to the loan as you pay it off.
The bottom half of the back contains more of the same terms and conditions that I’ve already covered above. so in the interest of actually being able to end this article. I’m going to skip it for now.
Bank of America promotes its CleenSweep debt consolidation offer as a way to get out of debt with one predictable monthly payment. A quick examination of the offer easily shows us that the intent of the offer is not to get us out of debt, but to in fact encourage the extension of more credit and cash to use how we see fit to use it. Maybe even for drugs, gambling, compulsive shopping or some other purpose that is not in our best interest.
The idea that this offer will actually be as shown to the majority of people who apply is very suspect. The majority of people will not be able to repay their debt in accordance with the repayment table shown and there is nothing fixed about the monthly payment when the terms, fees, and APR can be changed at will by Bank of America.
In fact, the repayment table is completely misleading, false, and inaccurate even for the most qualified of applicants. The table shows a monthly repayment amount for 96 months, that’s eight years. There is no recorded time in the history of the prime rate where it has held the same interest rate for anywhere near that time period.
If we look at the prime rate adjustments over the last eight years you can see that the rate today, the rate that the repayment chart is based on, is at the bottom of the prime rate trends. That means that there is a significant chance that both the prime rate and your “fixed and predictable” monthly payment will rise during the period of repayment and be neither fixed nor predictable.
This offer appears to be nothing more than a ploy to push more credit to people that might be concerned about their current financial situation, looking to consolidate their debts or get a grip on better managing their financial situation. However, almost everything about this offer does none of that.
My vote about this offer – Avoid It.