Mail Call — What’s Today’s Trick?

Maybe you’ve seen the “magic” web site where you are shown 6 cards — 2 Jacks, 2 Queens, 2 Kings — and are told, with suitable graphic hoo-hah and abracadabra, to select one in your mind. Then, after some more abracadbra, just five cards are displayed — and, amazingly, THE ONE YOU CHOSE IS MISSING!

This actually astounds some people.

Of course, the trick is that ALL six original cards are missing. Yes, there are still Jacks, Queens and Kings as before, and there are still Diamonds and Hearts and so forth. They’re just different from the first six. (“That’s cheating!” “You tricked me!” Well, that is of course why they call them magic tricks.)

I mention this because the daily mail we receive is another “find the trick” kind of game, except that unlike the Magic Card Trick web site, those who miss the trick suffer financial consequences.

Some are worse than others, of course, and the one I got this morning was not so terrible — but here it is. It comes from my American Express Delta Skymiles Card, and consists of four pre-printed “checks” I can use to borrow up to $20,000 (my credit limit) at just 4.9% for eight months.

I was tempted to write a check for $20,000 and use it to invest in something pretty safe I think may earn MORE than 4.9%.

Yes, it might be hard to get the IRS to accept an interest deduction for that 4.9% (credit card interest is normally not deductible), though it might well be justified as investment interest expense. But leaving that aside — what’s the trick? How can Amex make money lending at 4.9%?

Well, the main thing is that, deep enough in the letter that you might miss it, they mention that there is a transaction fee for each check you write of “just 2%.” That’s “just $400” in the case of the $20,000 check I had in mind. So suddenly the rate jumps from 4.9% to about 8%. (If you got to borrow it for the full year at 4.9% plus 2% that would be 6.9%. But you’re paying that 2% for what may be only six or eight months’ use of the money.)

(And technically, if it’s a transaction fee not interest, then that part would presumably NOT count as investment-interest expense, even if you wrote the check to make an investment. It would be a “miscellaneous” investment expense which, because of the threshold you have to meet before deducting such things, would probably do you no good. Not to say anyone in your household or at the IRS would/should spend a great deal of time determining the tax treatment of $400.)

And the second thing is that if you should fail to pay your monthly bill on time, the promotional rate disappears and it’s all recalculated to 22% or whatever Amex is charging these days.

Amex knows that a certain number of people, through financial difficulty, sloppiness, or just being away on business too long to get back to do their bills in time, will get tripped up by this. And there is also the hope that even if you do pay the monthly minimums on time, you will not be able to pay off the balance in January, when the promotional rate ends.

Is this a terrible deal? No.

Is it “a trick” to highlight 4.9% everyplace in the mailing and on the envelope, and bury the tiny little all-but-trivial 2% transaction fee and dire consequences for being late with a payment? Sure. And, this being America, I think Amex has every right to do it. They disclosed their terms and would doubtless live up to them. No regulation or class action suits are called for . . . just a healthy skepticism whenever you get a financial offer in the mail. Many or most of them contain tricks.