Important points
- Empower Finance, best known as a cash advance app, is acquiring credit card issuer Petal.
- Petal promoted its credit cards as a solution for people with poor credit, but came under fire last year for downgrading some customers to annual fee cards.
- Cardholders can wait to see if the influx of funds improves their benefits or apply for a new card before any changes occur.
Empower Finance is acquiring Petal, a credit card that originally made headlines for its promise of helping customers build credit at a low cost, but ended up downgrading some of those same customers to cards that charged higher fees. This is the issuing company.
When it launched in 2016, the Petal credit card company touted it as an affordable way to access credit, even for people with less-than-stellar credit histories. Its approval process used alternative data such as banking information, not just credit scores and credit history.
Also, unlike some credit builder cards, Petal doesn't charge a deposit. Plus, you can earn 1% to 10% cashback depending on your approved card. This is unusual for a credit builder card with no annual fee.
However, the company ran into financial trouble after users reported problems, including some customers being downgraded to versions of the card that charged annual fees.
If you're a current Petal cardholder or interested in using one of this company's cards to improve your credit, here's what this acquisition means for you.
What is Empower Finance?
Empower Finance is best known as a cash advance app (and is not affiliated with Empower, which provides investment and retirement planning services). A cash advance is basically a short-term loan that you can access without applying for a loan through a bank or online lender. Depending on where you borrow from, including predatory lenders, cash advances can charge very high interest rates.
Empower doesn't charge interest or late fees for cash advances, but you do need to sign up for the app, which costs $8 a month. Instead of your credit history, Empower says it uses your income and spending habits to determine how much you can borrow, up to $250. The loan amount will be debited from your bank account on the scheduled repayment date.
Empower Finance also offers other financial products and money management tools on its app, including a credit product called Thrive and credit monitoring, savings and budgeting tools.
Empower is expected to complete its acquisition of Petal by the end of June, merging the services of both companies into a single product experience, but it's unclear how that will play out.
What does this mean for Petal cardholders?
Petal customers will now have access to and potentially benefit from all Empower Finance products and money management tools. But it could also mean you'll be charged Empower's $8 monthly subscription fee.
And while Empower's cash advance has potential value, if borrowers need more time to repay, they may want to use Thrive credit services instead, said credit card expert and CNET said expert judge Jason Steele.
“Empower advertises interest-free and fee-free cash advances, but if you choose a repayment date instead of default or choose the installment payment option, you will be charged 35.99% interest per annum.” He said. “While not as predatory as some payday loans, they are more expensive than many credit cards.”
Despite user complaints about Petal's downgrade practices, the credit card company is still well-known for its cash flow underwriting technology, offering an alternative for those with no credit or poor credit reports or scores. says credit expert John Alzheimer. Previously he was with FICO and he was with Equifax.
Petal's technology appears to work with Empower's underwriting operations, which use non-traditional data to evaluate consumers rather than credit history.
“It's unclear what Empower will keep with the Petal acquisition, but it seems logical to incorporate cash flow technology into its existing underwriting operations,” Alzheimer said.
Credit cards typically charge upfront fees for cash advances and come with interest rates that are higher than the card's standard APR (usually 24.99% to 29.99% or more).
What happened to Petal last year?
The acquisition was announced earlier this month, about a year after the Petal card brand came under fire for downgrading customers to annual fee cards. Some customers who owned the Petal® 1 “No Annual Fee” Visa® Credit Card* or the Petal® 2 “Cash Back, No Fees” Visa® Credit Card (both with no annual fee) have noticed that the company I reported it as a downgrade. The new Petal 1 Rise* card has a $59 annual fee and a higher variable APR than his other two cards.
Petal 1 Rise includes a 3% cash-like transaction fee with a minimum $10 (cash-like transactions include money orders, person-to-person cash transfers such as Venmo and CashApp, and lottery and gift card purchases); Late fees are included up to $40 and refund fees are up to $29.
For a company that promoted itself as an inexpensive way to build credit, the new terms were very different from the previous Petal card. Users who signed up for one card were eventually forced into an ultimatum. Either agree to the new terms and pay the annual fee (which may be difficult on a tight budget) or cancel the card and potentially hurt your credit score.
What's even more confusing is that both the Petal 1 and Petal 2 cards are still available with no annual fee. And while both cards remain great credit-building options for users, CNET currently recommends them because there's no guarantee they won't be downgraded to the lower-tier Petal Rise. not.
What happens next?
For now, Steele said Petal cardholders won't see any major changes right away, but the influx of new capital from the acquisition could change the user experience.
“Petal is struggling as a company, and an acquisition could provide new resources or significantly change its business model,” Steele said.
In the meantime, current Petal cardholders can wait to see if there are any positive improvements or find an entirely new credit card.
If you're closing your Petal account and applying for a card from another issuer, consider keeping your Petal account open during the application process so your current credit line can prove your creditworthiness.
Alternative cards for Petal users
If you're thinking of trading in your Petal card for a downgrade or acquisition, but your credit score is still low, you may want to consider applying for a secured credit card, which typically requires a deposit .
“Whether you have fair or bad credit, we strongly recommend considering a secured card with no annual fee, rather than an unsecured card with hefty fees,” Steele said.
Specifically, Steele recommends that cardholders with good or bad credit obtain a secured credit card, such as the Capital One Platinum Secured Credit Card* or the Discover it® Secured Credit Card*. Masu. With the Capital One Platinum Secure Credit Card, users can start building credit with deposits as low as $49 and no annual fees. Credit limits on the Discover it® Secure Credit Card range from $200 to $2,500 and are directly proportional to the amount you deposit. There are no annual fees and users can earn cashback benefits.
If you are a Petal cardholder and have used your card responsibly for at least a year, you may qualify for an unsecured credit card with no annual fee. If you choose this route, Steele recommends applying for a simple card from your bank or credit union.
*All information on “No annual fee” Visa credit card Petal 1, petal 1 rise, Capital One Platinum Secure Credit Card and Discover it Secure Credit Card Independently collected by CNET and has not been reviewed by the publisher.
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