The Forbidden Fruit: How Do Companies Sell Hazardous Products?

Cash Rewards: How to Sell Debt

In Financial on February 26, 2011 at 17:06

Can you get paid to make debt? With Bank of America, it seems you can.
(image © BoA)

Debt has become a mass commodity. From entire states to individuals: Everyone appears to lend money these days. But how do you sell a product that is so hazardous, it can ruin the financial health of its consumer? Bank of America is trying to seduce customers by offering what they are best at: money.

Why is debt so hazardous?

As with all things financial, the danger of debt lies in the exponential nature of interest. You can lend money from credit card companies (who, oddly enough, lend this money from the central bank) to make an immediate purchase and pay them back over a stretched amount of time. As they charge you interest, you pay back more money than you originally took out. This is the profit the bank makes, but as the amounts are split up, you quickly loose track of the premium you pay. Additionally, the interest can quickly amass as time goes by.

How does Bank of America sell debt?

This is one thing we will have to explain twice when the aliens land: Banks are now paying you to go in debt with them. Bank of America has recently launched their Cash Reward Credit Card, a credit card that will credit 1% on all purchases to you. A series of ads describes a number of selling points, as for example the card’s simplicity in the example above.

Interestingly, the number that comes up over and over is the 1% cashback you receive. The number you do not get to know, is the APR or annual percentage rate. According to Bank of America‘s website, you will have to pay annual interest of anywhere between 12.99% to 20.99%. When you compare the cashback to the APR, it becomes apparent that this is merely a symbolic act rather.

What is interesting now, is that the ad is only focusing on a very short amount of time you use the credit card; that is when the protagonists use it to purchase something. The underlying implications of this purchase, potential debt, are not portrayed. Clearly, the ad therefore is trying to link Bank of America and its credit card to the gratifying elements of the product, not the hazardous ones.

How is the hazard addressed?

It is interesting to see that there is only a small print that is shortly displayed to refer the customer to the website to see the details. Whereas in other countries, such as the Netherlands, advertisers need to display a warning label similar to the ones we know from cigarette packs, Bank of America can do without. In short, Bank of America incentivises its customers to go into debt by offering a symbolic percentage point on money its customers do not even have.

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