Fifth Third Puts a Line of Credit on Their Debit
Fifth Third is rolling out a new checking account card that folds credit and debit into one card. As far as I can tell, the new DUO card represents something entirely new in the history of deposit products.
I bet than any fan of innovation loves this card.
Consumers can choose to put any transaction on the card’s line of credit or to pay from existing funds in their checking account. At a merchant, a consumer will pay debit when they use a PIN and credit when they provide a signature. Both sides of the card can be accessed at an ATM, as well.
“Many consumers see the value in both debit and credit options and choose their payment method at the point of sale for a variety of reasons,” said John Groch, SVP for deposit services at Fifth Third.
Fifth Third says that the new card is designed to help consumers manage their bank transactions with one fewer card in their wallet. In order to get a Duo, customers have to sign up for a regular Fifth Third checking account. The card is merely a means of splitting payment streams on to that account.
Analyzing the Card
The first problem that I can see with this card is that it puts the decision to use credit in the hands of the merchant. Even though a PIN-based debit comes with lower interchange fees for merchants, many of them still insist on “running it as credit.” With this card, there will be many instances when a consumer will not be able to debit their checking account.
The second problem comes at the ATM. The DUO card gives a consumer access to both sides of the account at an ATM. However, if you use the card to take out funds against your credit account, Fifth Third considers it as a cash advance. The interest rate on cash advances is 24.99 percent. The interest rates on the line of credit are variable and range from 13.99 percent to 23.99 percent.
In states where it is legal, the DUO card will also allow a consumer to take out money against their “Early Access” account. Early Access is the 5/3 version of bank payday. Similar iterations are available from Wells, Regions, and US Bank. In each case, the advance is taken off of the customer’s next direct deposit. Fifth Third takes a fee of 10 percent of the advance. If a consumer cannot repay with their next direct deposit, then the advance is renewed with another 10 percent fee.
The last part is about disclosure. My CSR suggested that if I was going to run a balance past the next payment cycle, I should take out an Early Access advance. The problem was in his math. He said that the 10 percent Early Access fee would be more affordable than even a cash advance from the ATM on my line of credit, given that the cash advance carried an APR of 24.99 percent.
