Rethinking A Move Away From Credit Cards

In this new era of supposed financial sobriety, consumers are putting less on their credit cards — often because they can no longer get credit cards. But if you really want to buy something online, you can still get credit. People are reaching for alternative forms of credit: Sometimes they're using their debit cards to overdraw their bank accounts; and sometimes they click on "Bill Me Later," a service — now owned by eBay — that does just what it says. Thing is, if you're late with a payment, the interest rates are punitive — and now some consumers are suing, saying it's a new form of disguised usury. And the case is making some consumer advocates say maybe people should think twice about moving away from credit cards.

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Well, for those of us on Main Street, our love affair with credit card seems to be fading. Cards are harder to come by and credit limits are going down. But as NPR's Martin Kaste reports, some people are turning to alternative forms of credit that may actually cost them more.

MARTIN KASTE: You may have noticed the logo on some Web sites. Instead of paying with a credit card, you're invited to click on Bill Me Later, that's actually the name of a payment company Bill Me Later. It's used by sites ranging from AirTran to Zappos.

Brea Todish(ph) discovered it a while ago.

Ms. BREA TODISH: Primarily I've used it for clothing items and for books.

KASTE: Bill Me Later takes your name and part of your Social Security number and then, depending on a credit check, it lends you the money for a single purchase.

Todish says when she was shopping online for new clothes for job interviews, the Bill Me Later option clinched the deal.

Ms. TODISH: I was sort of looking at, you know, a couple of different sites for options. And in the end, I ultimately chose the site that had Bill Me Later, because at the time, I was pretty short on other funds.

KASTE: As some people become more reluctant to use credit cards, online merchants are especially worried about losing sales.

Marty Keane, VP of e-commerce at a retailer called Bluefly, says Bill Me Later is a must.

Mr. MARTY KEANE (Senior Vice President of E-Commerce, Bluefly, Inc.): It is the one thing that we can offer that says, okay, well, if you don't have a credit card at all, here's an opportunity to still make a purchase.

KASTE: Bill Me Later charges no interest for the first few weeks or even the first couple of months, depending on the deal offered by the merchant. So it's essentially a free loan if you pay it back on time.

Mr. STEVE BERMAN (Attorney): If you pay exactly on time.

KASTE: Steve Berman is a lawyer in Seattle.

Mr. BERMAN: But if you don't, you get surprised by the interest payment and the penalties, and that's where people start complaining.

KASTE: Berman's law firm has been online collecting those complaints for a lawsuit against Bill Me Later. He says as soon as customers are out of the repayment grace period, they face an interest rate of 20 percent plus late fees. Berman says one of his clients missed a payment on a $20 purchase and found himself owing 40.

Mr. BERMAN: A loan shark would be happy to get 100 percent of the purchase price.

KASTE: Berman contends that these fees violate the usury laws of California, the home state of Bill Me Later's parent company, eBay. And he says the company is trying to get around the state rules by using an out-of-state bank, CIT, as a front. He says Bill Me Later's business may be capitalizing on customers who are already in financial trouble.

Mr. BERMAN: Now, I wonder if the people who are pushing the buttons Bill Me Later are going to be - have a more propensity of not to pay on time. Because why would you do this? If you've got a credit card, just slap it down.

KASTE: Bill Me Later told NPR that it would not comment on Berman's lawsuit and it didn't accept an invitation to talk more generally about its product. EBay and CIT did take questions but did not respond to them.

Customer Brea Todish says she's satisfied with Bill Me Later. She says she hardly blinks at the company's interest rate.

Ms. TODISH: A couple of years ago, 20 percent, which is usually what it is, would have seemed very high to me. But now I have credit cards that want to charge me, you know, 24, 25, even up to 28 percent.

KASTE: Still, there are other costs to customers like Todish - borrowing money from Bill Me Later may hurt her credit rating - the effect of multiple credit checks for individual purchases. And she doesn't have the benefit of the consumer protection laws that cover credit card purchases. But those are costs that she says she's willing to pay if it lets her rely a little less on the plastic.

Martin Kaste, NPR News.

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