Discover responsible credit card options and alternatives to the mega-banks.
One question we get often from Real Money readers is: Which credit card is the most socially responsible?
We’re happy to tell you that a few responsible banks and credit unions are offering credit cards that can be a force for change. We’ll walk you through the options so you’ll know which credit cards to avoid and which will work best for you and for the planet.
About the Mega-Banks
Many credit cards, especially those whose offers arrive most frequently in your mailbox, are issued through corporate mega-banks such as Citibank. The problem with these banks is that they may be using your fees and the interest you pay on your credit card balances to fund projects that aren’t in line with your values. For example:
1. Harming the Earth: Several mega-banks have been targeted by activists concerning environmentally destructive projects they’re funding.
Better mega-banks:After a prolonged campaign spearheaded by Rainforest Action Network (RAN), JP Morgan Chase (owns Chase and Bank One), Bank of America, and Citibank adopted a new lending policy last spring that addresses global warming and deforestation, and recognizes the rights of indigenous nations.
Worst performers:Currently, RAN is poised to launch another campaign targeting other mega-banks that haven’t adopted the policy, including Wachovia, Wells Fargo, Merrill Lynch, Morgan Stanley (owns Discover), and Credit Suisse First Boston. RAN is also separately targeting Wells Fargo for financing illegal logging in Indonesia and Credit Suisse First Boston for funding an environmentally destructive Shell oil pipeline project on Russia’s Sakhalin Island. The pipelines are likely decimate the island’s fishing industry, which is the sole means of income for many locals. They could also damage habitat of the endangered western grey whale. Visit www.ran.org for more information.
2. Political funding: Many mega-banks make large political donations to parties and causes that may be in opposition to your views.
Balanced donors:Of the mega-banks on which data is available, JP Morgan Chase’s political contributions were the most balanced between Republicans and Democrats.
Democratic donors: Washington Mutual’s contributions were weighted toward Democrats.
Republican donors: Bank of America, Capital One, MBNA, Citigroup, Morgan Stanley (Discover), USAA, Wachovia, and Wells Fargo all have made hefty contributions to Republicans. To find out more, visit the Center for Responsive Politics’ www.opensecrets.org, or BuyBlue.org, which puts data from the Center and other sources into easy-to-read tables.
3. Predatory lending: Predatory lending is a fast-growing practice in which financial institutions use high fees, exorbitant costs, and other unscrupulous lending practices to take advantage of targeted groups—often the elderly, students, and low-income people. In the case of credit cards, banks may market cards to these groups that “contain hidden transfer charges, exorbitant late fees, and exploding interest rates,” according to the Center for Responsible Lending (CRL).
It’s not just target groups that suffer from such practices. A Woodstock Institute report states that “the intricate web of penalties and fees implemented by the credit card industry may be one of the key factors for the high level of indebtedness among Americans. In January 2005, the average US household had seven credit cards and carried a balance of $14,000, the highest level of debt ever.”
Better mega-banks:To avoid predatory credit card practices, the Woodstock report indicates that you may be better off choosing cards from credit unions, rather than any of the mega-banks. “Credit cards issued by credit unions have similar purchase interest rates but come with fewer fees, lower fees, lower default rates, and conditions that are much clearer” to the consumer, it says.
Consumer Reports magazine looked into the fees and penalties imposed by mega-bank credit cards in its November 2005 issue. Its list of top ten most consumer-friendly credit cards includes: Town North, First Tennessee National Bank, Pulaski, Simmons First National, Target National, BB&T, Franklin Templeton Bank & Trust, RBC Centura, Commerce, and Zions.
Worst performers:Most mega-banks engage in predatory credit card practices, according to Consumer Reports. While CRL says that most have cleaned up their acts in terms of predatory mortgages and loans, the Association of Community Organizations for Reform Now (ACORN) is still targeting Wells Fargo. Though ACORN says the bank has corrected many of its predatory practices, it says Wells Fargo still has not made reparation to victims of its predatory loans. ACORN also claims that the bank charges African Americans and Latinos higher loan rates than Caucasians.
To read the Woodstock study, visit www.woodstockinst.org. For the latest on predatory lending, visit CRL’s Web site, www.responsiblelending.org, or ACORN’s site, www.acorn.org.
4. Other problems: Several mega-banks have been criticized for other problems, ranging from a lack of diversity among their higher-level executives, to human rights violations, to involvement in ethics scandals. For example, both JP Morgan Chase and Citigroup agreed to pay a combined $236 million to settle charges that they helped Enron manipulate its books in 2003.
Better mega-banks: First Tennessee National Bank (owned by First Horizon National Corp.), TD BankNorth, and Washington Mutual all made Business Ethics magazine’s 2005 list of 100 Best Corporate Citizens. While Business Ethics acknowledges that the companies on the list aren’t perfect, they are all outperforming their peers in terms of the environment; community, employee, customer, and shareholder relations; diversity; human rights; and corporate governance. To read the 2005 list, visit www.business-ethics.com.
Worst performers: Many mega-banks have been at the center of ethics and social controversies. We found significant ethical problems with JP Morgan Chase, Citigroup, Bank of America, Bank of New York Co., SunTrust, FleetBoston Corp, and Target National, ranging from employee discrimination to refusal to settle victim lawsuits over past funding of South Africa’s former Apartheid regime.
Affinity cards are cards issued by a major bank that also bear the logo of a select charity or nonprofit. Each time you uses an affinity card, the issuing bank donates a set amount to the charity/nonprofit.
The average contribution to the nonprofit from such cards is half a penny for every dollar you charge or transfer, according to Bankrate.com. Affinity card profits can add up for a charity or nonprofit when many people use the cards.
However, since affinity cards are usually connected with a mega-bank, your money also indirectly supports any problematic practices of that bank. Interest rates are often higher than with standard cards; annual percentage rates (APRs) on affinity cards range from 15-22 percent. Many charge annual fees, while most standard cards do not.
Working Assets Visa Card
Perhaps the greenest affinity card available is the Working Assets Visa card, which donates ten cents with every purchase to your choice of one of 50 nonprofits. It offers a 9.9 percent APR, with no annual fee. Working Assets also aims to serve as a progressive political force, dedicated to giving its customers the opportunity to speak out on critical public issues through its action Web site, www.actforchange.com, and long-distance telephone program. Recent actions included a call to Apple Computer to take back its used products (it recently agreed to take back old iPods). Each month, Working Assets customers generate over 80,000 calls and letters to politicians on social and environmental issues, says the company.
One caveat: Working Assets Visa is issued by MBNA, which has made large contributions to the Republican party and has been accused by consumers of predatory practices. The card used to be issued by Fleet One, but MBNA purchased the Working Assets program from Fleet.
Michael Kieschnick, Working Assets president, believes that the good his company does offsets any negatives from its association with MBNA: “Even though we did not select MBNA and have explicitly opposed their primary legislative agenda, we do believe that our program contributes significantly to progressive social change. Our credit card itself, since inception, has generated about $6 million in donations to progressive causes,” he says.
Cards that Build Communities
Your very best option is to obtain a credit card through a community investment bank or credit union, which provide loans and other financial services to those underserved by traditional banks. By choosing one of the following cards, you channel the profits these institutions make from your card fees and interest toward helping low-income people lift themselves up economically.
• Shorebank Pacific, based in Ilwaco, WA, offers its Salmon Nation Visa card with a 12.9 percent APR and no annual fee. Fifty percent of Shorebank’s income from the card funds efforts to grow a community of citizens that practice environmental stewardship of “Salmon Nation,” a bio-region stretching from Alaska to Oregon where wild salmon live. The card is not issued with a mega-bank, but rather in conjunction with TCM Bank, which is owned by the Independent Community Bankers Association, a trade association that advocates for community banks. You do not need to have an account with Shorebank to apply.
• Oregon’s Albina Community Bank offers the “Scholastic Plastic” Visa card with a 11.99 percent APR and no annual fee. Profits from the card not only support Albina, but one percent of every purchase goes to Portland’s schools. You do not need to have an account with Albina to get the card, and it is not connected to a mega-bank.
• Alternatives Federal Credit Union, based in Ithaca, NY, offers a Visa credit or debit card to its members with a 9.5-14.5 percent APR and no annual fee. Anyone in the US can take advantage of online banking and become a member. The card is not connected to a mega-bank.
By using one of these best-option cards wisely, you can make your charges a force for change.