$9 fee just for paying credit card bill online

By David Lazarus

Look beneath the hood of your typical credit card and you'll find unexpected fees -- and, sometimes, more.

Our story today begins with Foster City resident Harvey Silverman, who wanted his teenage son to develop good financial habits. So he shopped around before settling on plastic that he hoped would serve as the foundation of a sterling credit record.

Silverman picked a Visa card from 1st Financial Bank USA, a South Dakota company that specializes in issuing plastic to college students. Silverman liked that 1st Financial's card came with no annual fee and provided only a modest credit limit of $250.

Then a problem arose. Silverman's son, Ross, was injured playing rugby in Santa Barbara, where he's attending school. What Ross thought was only a minor scrape turned into a serious infection, and he remained hospitalized for about a week.

"His roommate was supposed to pay his credit card bill for him, but he forgot," Silverman told me. "We discovered this on a Sunday morning, so we figured we could just go online and make the payment."

And they could -- for a price. Turns out 1st Financial charges a $9 fee for any payment made online or by phone, including use of the bank's automated phone system.

And that fee jumps to $12 next month for payments by phone involving a service rep.

"This is absurd," Silverman said. "Students spend most of their time online. This just takes advantage of them."

In any case, he and his son agreed that a $9 online fee would be better than a $37 late fee, so they made the payment over the Internet. The bank's site said the payment would go through on the next business day, which would just hit the deadline.

Ah, but not so fast. The $9 online fee showed up on the next bill, but so did a $37 late fee. Silverman said a bank rep explained that "the next business day" in fact means "the next business day after a business day."

In other words, his son's Sunday payment didn't go through until Tuesday, a day late. (To its credit, the bank subsequently waived the late fee.)

I didn't know much about 1st Financial, except that it was founded in 1910 and is said to be the eighth-oldest national bank in the country. I went to the bank's Web site (1fbusa.com) but, weirdly, couldn't get in.

Turns out 1st Financial won't issue plastic to just anyone. You have to be invited to apply for their Visa cards and MasterCards, and if you don't have a special nine-digit "invitation code number," you can't even access the bank's lending terms.

This is the first time I've ever encountered a credit card issuer that turns potential customers away at the door.

When I called the bank to see if there was a technical problem with the site, a service rep explained that the invitation-only system is "how we do it" and said that invitations are mailed out to thousands of college students nationwide.

She said the names and addresses of students are obtained from "companies that get them from the colleges."

Well, that raises all sort of questions -- not least, what are colleges doing selling their students' contact info to marketers?

But there's more. Dig a little deeper and you discover that 1st Financial also runs a Web site called CollegeData, which provides high school seniors with extensive information about how to apply for a suitable college.

To register for the free service, you're instructed to provide your name, address, phone number, birth date and, yes, Social Security number -- pretty much everything that a financial institution might want to know in seeking credit card customers.

After leaving voice messages with several 1st Financial execs and sending an e-mail to CollegeData (the only way the service can be contacted), I finally reached Wayne Nesje, 1st Financial's vice president of customer service.

He declined to discuss any of my concerns over the phone but agreed to respond by e-mail to any questions I cared to submit.

As for why the bank charges a fee for electronic bill payments from its young, computer-savvy customers, Nesje replied that "online payments are not the preferred means of bill payment by our customers."

He said 1st Financial's Web site operates on an invitation-only basis because "the bank wants to encourage applications from those consumers whose identities and qualifications can be verified and evaluated."

"By issuing special invitation numbers in the mail, the bank also has an opportunity to provide clear and full disclosures about rates and fees, in writing, that the customers can keep for their files," Nesje said.

He confirmed that contact info for potential customers is obtained from "independent companies that specialize in collecting the required information" but declined to specify how many invitations are mailed out annually or how many credit card accounts 1st Financial has.

Similarly, Nesje declined to say how many young people have registered for CollegeData. He said only that 1st Financial "considers CollegeData a service to future college students that also builds the bank's name recognition with that group."

Less than 1 percent of 1st Financial's credit card customers come from CollegeData, Nesje said.

He also noted that the space on CollegeData's online registration form for people's Social Security number doesn't have an asterisk next to it, and thus this information is provided "solely at the option of the user."

Linda Sherry, a spokeswoman for San Francisco's Consumer Action, said she is wary of Nesje's responses, not least concerning the connection between 1st Financial and CollegeData.

"These are two businesses you wouldn't necessarily want to be linked," she said. "One collects data from young people. The other issues credit cards to young people.

"This appears to be a rich cross-marketing opportunity for the bank," Sherry added. "It's kind of like the fox guarding the hen house as far as all this data on young people goes."

And that's something all college-age hatchlings should keep in mind.

David Lazarus' column appears Wednesdays, Fridays and Sundays. Send tips or feedback to dlazarus@sfchronicle.com.