Credit card issuers stand to lose $15 billion in revenue from as a result of the new credit card rules, which stepped into effect last week. Not surprisingly, they have wasted little time in coming up with ways to restore lost income.
With the door slammed shut on retroactive interest rate increases, card issuers have turned their attention to one source of revenue poorly regulated by the new law: credit card fees. Over the past year, penalty fees and balance transfer fees have been steadily climbing. The median late payment fee now stands at $39, and making a 0 percent APR balance transfer now typically will cost you 3 to 5 percent in balance transfer fees.
In addition, card issuers are experimenting with creative new ways of increasing fee income, some entirely new, some a return of old fees with a new twist. Here is a sampling of some of the credit card fees that could be coming soon to a credit card near you:
The Inactivity Fee
The inactivity fee targets cardholders, which rarely use their credit card. The fee can run as much as $19 a month, almost $240 a year.
Apart from costs, the inactivity fee has a number of unfortunate consequences for cardholders. Firstly, since many people who don’t use a card don’t check the monthly statement, cardholders might easily miss the new charge and end up with late payments and other penalties on their account.. Secondly, cardholders who opt for closing the account to avoid the fee, might see their credit score go down, because closing the account could hurt their credit utilization ratio, an important part of the credit scores.
So far the inactivity fee has been tested by smaller card issuers, such as Fifth Third bank, and the larger card issuers have yet to jump on the band wagon. However, card issuers generally keep an eye on the state of each other’s lending practices, so if the fee appears to be successful, the large lenders may adopt it. There is one easy cure, however: use the card. Currently the fee gets assessed only after the card has not been used every 12 months, so rotating credit cards could easily protect you against this fee.
The Return of the Annual Fee
While cards with an annual fee have almost become a thing of the past for anyone with good credit, card issuers are now testing the waters to see if cards will annual fees will fly. In the fourth quarter of 2009, credit card companies sent out nearly 400 million credit card offers, and more than one third featured an annual fee-the highest percentage in a decade.
In addition, some large card issuers, like Bank of America, have run tests on a small percent of their cardholders, introducing annual fees ranging from $29 to $99. And while it’s still possible to find rewards credit cards without an annual fee, many of those featuring the most attractive rewards, also feature annual fees.
The Charge-More Fee
The charge-more fee is a new twist on the annual fee introduced by Citibank. Starting April, many Citicard holders will be charged a $60 “service” fee each year. The fee, however, will be refunded if cardholders spend more than $2,400 a year. In other words, to avoid the annual “service” charge, Citicard holders will need to spend about $200 a month. In a letter announcing the new fee, Citi quotes “the rising costs of doing business.”
The You-Don’t-Know-You’re-Paying-It Fee
To make up for lost income, credit card companies are likely to increase interchange fees, i.e. the fee merchants pay to each time a customer pays with a credit card. Interchange fees range from 1 percent to 3 percent of the total purchase price, and they have been steadily on the rise. Merchants are likely to pass the cost on to consumers by raising prices; which means that everyone pays for those fees, even people who don’t pay with credit cards.
In short, while the new credit card rules have brought some protections, there are plenty of reasons to remain on the alert. As always with credit cards, being aware of the newest credit card tricks and traps is the best way to take advantage of the many benefits of credit cards, while, hopefully, avoiding their pitfalls.
