Watch Out For Sneaky New Credit Card Fees

Remember the CARD Act, that shiny new law that’s supposed to stop credit card issuers from hitting you with all kinds of nasty fees and force them to disclose all of their terms? Well, even if you do, it looks like the card issuers have forgotten all about it. They’re working overtime to come up with a raft of new charges on things that aren’t covered by the new law, like annual fees and cash advances.

The Wall Street Journal counted the beans, and found that there are a lot of them:

[T]he banks are getting aggressive. According to a July 22 report from Pew Charitable Trusts, a nonpartisan research group, the industry’s median annual fee on bank credit cards jumped 18% to $59 between July 2009 and March 2010. At credit unions, annual fees soared 67% to $25. During the same period, the median cash-advance and balance-transfer fees jumped by 33%.

All of these increases are perfectly legal, of course. Banks and other issuers would have a difficult time extending credit to consumers, even at high interest rates, if they couldn’t augment those revenues with fee income. “We’re coming out of a deep recession that issuers are still working through,” says Peter Garuccio, a spokesman for the American Bankers Association.

Consumer advocates are fighting back against the worst of the fees, and the Consumer Federation of America sent a letter to the government warning that some represent “potential violations of the Credit Card Act.”

But, as the WSJ points out, the new law is expected to do away with $390 million in fees, and banks are going to do whatever they can to get some of it back. “It’s a race between regulators writing ever-more-complex laws and credit-card companies setting up ever-more-complex fees,” said Victor Stango, an associate economist with the Federal Reserve Bank of Chicago.

A Consumer’s Guide to the Latest Credit-Card Traps [WSJ.com]

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  1. benh999 says:

    Thanks a lot deadbeats. Those of us who are responsible and pay our credit cards in full every month now have to pay higher annual fees so you take less of an interest hit on your high balances.

    • dolemite says:

      I’m just looking forward to having them all paid off and when our CC overlords tell us indentured servants they are going to take 1 acre of our land for every late payment, I’ll say “FU mofos, my 7 years is up!”

    • fs2k2isfun says:

      Amen.

    • Loias supports harsher punishments against corporations says:

      Actually, I think the deadbeats need to yell at you!

      Credit card companies would be out of business if literally everyone paid off their balance every month and carried no balance month-to-month.

      So, YOU are to blame for the rate increases, you bastard responsible consumer!

      /snark

      • benh999 says:

        Good point. It isn’t like the get 2-5% commissions on every transaction.

      • Midwest Doc says:

        You are WRONG. Credit card companies do just fine if everyone pays in full each month. Income is derived from transaction charges and an annual fee. This is the old American Express business model.

        Deadbeats increase costs.

        • Polish Engineer says:

          I believe there are two distinct entities now. The banks that lend the money (Citi, BoA), and transaction brokers that process the purchases (Visa, Mastercard). So yes, Visa and MC will do fine as long as people keep swiping, regardless of whether or not you are paying off your balance. On the other hand, the banks are the ones that are in trouble and I believe are the ones levying the fees.

          Though I could be wrong.

        • mac-phisto says:

          sorry, but no. interchange income is nominal compared to interest income on a credit card portfolio. you’re talking 3% (interchange) vs. 20% (interest). & that’s doesn’t even include penalties & other fees which also comprise a healthy portion of their business.

          • johnva says:

            a) It’s still a substantial amount of money.
            b) To make lots of money on interest they have to take significantly more risk (ie, by loaning money to people who are more likely to carry a balance) than they take by loaning money to people who pay off their balance in full. Investment returns always have to be balanced against the risk taken. So the interchange income is almost like free money from a very low-risk investment when it comes to people who pay their balances in full every month. That’s why they haven’t cut off access to those customers in the past when they were less profitable than the subprime market. This fundamental economic truth is not changed by new interest rate caps.
            c) Even with interest rate caps, they will still probably make lots of money from interest.
            d) The likely response to interest rate caps is probably just as likely to be simply cutting off access to credit for very high-risk customers rather than instituting fees on low-risk customers.
            e) The credit issuers have an incentive to lie about what the likely changes to their business model will be, because they’re trying to discourage new government regulation that reduces their profits.

            • mac-phisto says:

              see my post above. interchange income isn’t “free money” at all. & who the hell said anything about IR caps? last time i checked, they didn’t make any recent legislation.

          • hansolo247 says:

            Incorrect.

            If one loans $1000 per month and the borrower pays it back each and every month without paying interest, that is $20 per month in income. That $1000 can then be re-lent 11 more times during the year.

            Baiscally, it’s a return of $240 on only $1000 of principal at any time. With little to no risk. That is phenomenal.

            Compare that to essentially 32% per year (2%+interest) on an EXTREMELY HIGH RISK borrower. Sure, it’s a greater return, but it comes with substantially more risk.

            From a risk/return perspective, there is a definite incentive to keep doing business with the low-risk borrower. For the higher risk pool…there is compounding interest, which can make the venture worthwhile (even if discharged after many years, the whole burdened principal is written off, and the tax benefit can still outweigh the original amount lent!!)

            There’s room for business with both, for different reasons. A CC company is wise to do business with both, although the exposure to high-risk pools should be limited.

            • mac-phisto says:

              why does this make my post “incorrect”?

              obviously there is an inherent risk in lending money, but i didn’t mention anything about the quality of the borrower in my post. furthermore, you are completely neglecting the realm of chargebacks & CC fraud – the reason banks receive interchange income in the first place. the $240 you presume is risk-free actually isn’t. what happens when your card is stolen & someone else runs up $1000 on it? if you guessed “the bank eats it”, you’d be right.

    • Supes says:

      It can only go on so long. At some point, if fees reach a certain level, consumers will decide that credit cards aren’t worth the trouble and will go back to debit cards or cash.

      I’m not sure where the breaking point is, but the fact is responsible consumers with good credit scores also tend to be more financially savvy. And I imagine they will start leaving the credit card industry in droves if the fees get too high.

    • Tim says:

      Actually, you should be thanking deadbeats. They’re the ones whose interest and fees have always paid for your credit cards. Now that they have some protections, the banks are seeking revenue elsewhere.

      So if the deadbeats never existed in the first place, you’d always have fees. The banks need to get paid somehow.

    • vastrightwing says:

      Actually, it’s people like you (who are educated and responsible) which cause the banks to add all these new fees. They don’t make money from you, but from the less savvy consumers like to be irresponsible with their credit cards. The law has made it harder for banks to suck money from them, now they have to go elsewhere. I’m prepared to go all cash if they come after me.

      • TouchMyMonkey says:

        But the net effect of this is to reduce the overall number of accounts. If all your credit cards, including the zombie cards you forgot you had, suddenly all had $59 annual fees, you’re going to do some credit card triage and cancel most of them. If you’re responsible with your credit cards, you probably also know how to minimize the impact of all the new fees.

        Me, I am down to one card from my credit union (7.9% fixed an no annual fee – take that, suckas!), on which I only charge what I can pay off on payday. The rest of these people can kiss my ass.

        Now watch – we’ll all do this, and one year your credit union will have no choice but to start charging annual fees.

      • hansolo247 says:

        Wrong…people that pay in full each month are an enormous profit.

        They reliably pay back loans, and the bank gets ~2% in merchant fees each month.

        That’s like making 24% per year before expenses, which is an insane level of return for the risk taken.

        • coren says:

          No, it’s still like getting 2 percent. Assume Bob’s Bait Shop does a 200k volume a month, so about 4k in fees paid to the bank a month.

          At the end of the year, that’s 48 k. Sure, that’s 24 percent of the 200k. But that’s what Bob made in January – over the year he made 2.4 million. Guess what percent 48k is of 2.4 million?

          • hansolo247 says:

            You’re looking at it from a different perspective.

            If one loans money to an individual 12 times a month and earns 2% each time he lends money, that is 24% returned per year on any principal that is loaned at any given time.

            • coren says:

              I don’t think so…I might have misunderstood you, but the way you’re describing it, you’d still look at overall principal loaned, and no matter how you slice it you’re only pulling 2 percent on each loan. Maybe you could go into more detail with what you’re saying, cuz either I’m not getting it or we understand this differently

              I agree that the people who go make a lot of purchases can be immensely profitable, just not how much.

    • Guppy06 says:

      Have you been paying attention to the banking crises of the past two years at all? Do the words “predatory lending” mean anything to you? “Contributory negligence?”

      The “deadbeats,” as you eloquently call them, are known to be deadbeats long before banks mail out those pre-approved offers of credit (only the savvy know how to stop those). People who live in bigger houses than us and drive nicer cars are paid to figure out who is and who is not a good credit risk. But the bankers gambled and thought they could make a profit off the deadbeats anyway, and they did for a long time, until someone took a closer look at the books. Those whose job it was to determine who should and should not be extended credit were promoted and given fat federally-subsidized bonuses (lest these “geniuses” were hired away by some other group of shareholders with more money than sense), leaving everybody else to clean up the mess.

      Want to punish the responsible parties? Stop giving money to banks who knowingly gave out credit cards as if they were candy. I know my bank hasn’t had to change their terms like this.

      But if you still want to hold the poor, defenseless banks harmless, then it’s time to take a look at yourself. Just why isn’t your credit good enough to get a card with no annual fee?

  2. ss60 says:

    If you don’t like the fees, ditch the card, go with one with no fees

    it’s not that complicated

    • benh999 says:

      Ok, then I go with a card with few or no rewards. Again, this is a net loss for responsible people.

      • Tim says:

        I have two credit cards. Neither has annual fees nor rewards. So it’s definitely not a net loss for me (assuming I don’t pay penalty fees or interest), but it’s not a gain either.

        • benh999 says:

          You are assuming (in all likelihood incorrectly) your no-fee card will not get a fee now that interest rates are being reduced by legislation.

          • johnva says:

            There’s still an incentive to practice credit discrimination, just like in the past. Government legislation doesn’t change the inherent fact that companies will want to charge more money from people who are more likely to default. That’s why they’ll probably apply these “fees” unevenly if they can’t do it using interest rates. As long as there are some cards with no fees, people with good credit will move issuers.

            If there are NO cards with fees, a lot of people with good credit will simply stop using them.

          • johnva says:

            That should “no cards WITHOUT fees”.

      • Griking says:

        Rewards are just a gimmick to get you to charge more.

        • johnva says:

          So? That’s not a problem if you aren’t SPENDING more, also.

          And I get hundreds of dollars a year from that “gimmick”.

        • johnva says:

          And also, they’re not just trying to get you to charge more; they’re also trying to lure your business away from competing banks.

        • benh999 says:

          Yeah. A vacation every year in exchange for my

    • dg says:

      i haven’t paid an annual fee on a card EVER. The only card I ever held which had an annual fee was a Corporate AMEX Green card that the corp paid the fee on.

      Any card I have – if they propose a fee, I call them up and tell them I don’t pay annual fees. If they waive it permanently, I’ll keep the card. Otherwise they can keep the card – I’ll close the account and get a different one.

  3. david0mp says:

    Why are you throwing USAA under the bus? I am not aware of any new fees from them.

    • hansolo247 says:

      Exactly. I’ve never paid a fee to USAA.

      My credit card with them is a net earner for me.

  4. Polish Engineer says:

    One of the problems here is that the companies that process these cards charge too much. Plain a simple. Visa, Mastercard, and Discover all run net profit margins of close to 30%. They have set the bar of success incredibly high and are unwilling to bring that down to a more reasonable level. It’s a classic middleman scenario and everyone, banks, retailers, and consumers, are getting gouged.

  5. chocolate1234 says:

    I had Bank of America charge me when a payment due on a Sunday wasn’t processed until Monday. Problem is, I had scheduled the payment on THEIR website, and clicked on Sunday because that was the day it was due. It didn’t process until Monday, so I got a $39 fee (or whatever it is they charge). I called and before I could even explain what happened, the guy said, “You’re calling about the late charge. I’ll reverse it. We have to if you call.” So shady. They are banking on a lot of people not bothering to call.

    • COBBCITY says:

      I have had that happen twice in the last 3-4 years. Yup, the second I e-mail or pickup the phone the late charge (caused by their posting both times) was instantly credited. Late fee? Nope, not gonna happen.

    • S says:

      Watch your next few statements carefully. When the exact same situation happened to me, three months later I noticed that reversing the late charge triggered a “penalty interest” that jacked my APR up. I had to call and have that reversed as well.

  6. johnva says:

    What seems possible to me is that they will still attempt to practice some form of credit discrimination. If some cards have annual fees, and some don’t, they could simply refuse to give the no-fee cards to people with lower credit quality. Then they would be charging the same people who are currently paying more interest more in fees.

    The reason I think it’s likely they will attempt to go this way, if the government regulations allow them to, is that people who have good credit can simply dump their current card for another that doesn’t have a fee at any time. So there’s going to be more competition for the segment of the market that has good credit, since they aren’t as locked in to their current issuer. That produces an incentive to not hit them with fees. And don’t be fooled: even if they aren’t making money off of you on fees and interest, they can still make money on the transaction fees. If the interchange fees are capped by the government, they will just drop the rewards they pay out down to the point that they still make money from the people who don’t pay interest.

  7. COBBCITY says:

    I just ditch Citibank because they not only slashed the Thank You rewards program last year, they now wanted an annual fee. Not to mention them blowing $$$ on postage mailing me cash advance checks for my card when I have NEVER taken an advance or asked about what. Nice waste of money, Citi.

    If you have excellent credit it is easy to find a card that is thrilled to have you with no fees.

    Honestly, I have been loyal to the GM MasterCard (HSBC) for over a decade. 5% of my purchases goes into a rewards account to be used towards a new car purchase. Yup, they have some caps on what you can redeem but are known to waive them during special promotion periods.

    End result, I received $2,500 off one car in 2001, $2,500 of another car in $2003 and last year they took $3,000 of the car I purchased. All because I throw almost everything I purchase through that MasterCard and pay it off each month in full. Never a fee. Not a dime of interest.

    • johnva says:

      Citi slashed most of their rewards programs several years ago. They haven’t been very good for a while now. Fortunately, Chase has so far let me keep my 5% cashback card (on gas, groceries, drugstores) that I’ve had for years now and that was originally a clone of a Citi card that is long since gone.

      The big problem I see with something like that car discount card is that I’m nervous about saving up that much in a rewards account that they could devalue at any time (well, that and the fact that I’ve got less than no desire to ever buy a GM car). I prefer just straight up cashback that I can cash out as soon as I reach the highest redemption rate.

  8. kataisa says:

    This is why everybody should loathe and fear government “reforms”, which rarely work to the benefit of the consumer populace. Because government is in bed with Wall Street and Big Banks, they always leave a ton of loopholes like these for the banks to work with. So once again another government band-aid that’s nothing more than window dressing only ends up helping the big banks who pay millions into lobbyists and campaigns, and fleeces the everyday middle-class/working-class consumer.

    Another reminder why everybody needs to move their money out of big banks and into smaller, local credit unions.

    http://moveyourmoney.info/

    • EverCynicalTHX says:

      I agree completely, the government will fix this just like they’re fixing health care. Anyone that believes that excessive government intervention will do anything other than screw up the system hasn’t followed the real estate bubble and government’s intervention into home lending and regulation.

    • johnva says:

      If you’ll note from the article, the credit unions raised their fees dramatically as well. They’re not a magical solution.

      And again, none of this has materialized for me, yet. If it does, I’ll reevaluate the value of credit cards for me.

    • erinpac says:

      The article mentioning the largest increase in fees being at credit unions is a reminder why everyone should move from banks to credit unions?

      Somehow I don’t think this is the best example, even if you feel that way.

      • mac-phisto says:

        OMG THOSE EVIL CREDIT UNIONS RAISED THEIR FEES BY 67%!!! THOSE BASTARDS!!!!

        -the fee is STILL LESS THAN HALF of the median bank fee
        -a 67% increase to $25 means the old fee was $15, which translates to an increase of $10
        -an 18% increase by banks to $59 means the old fee was $50, which translates to an increase of $9

        don’t buy into the sensationalism. any way you cut it, they’re still better.

        FD: i work at a credit union, i use them for virtually everything & i carry a CU credit card – no annual fee, FIXED RATE since 1996. show me the card in your wallet that’s had the same rate for 14 years.

        • johnva says:

          Who cares what the rate is? I don’t carry a balance, so that’s irrelevant to me. For my usage profile, the only thing that matters is a) whether there are any fees, and b) how much they pay me to use it.

          For someone who carries a balance, ABSOLUTELY I think a credit union card is often a better choice. For someone who wants the card that pays the most rewards, rarely is that the case (the banks are generally much more aggressive about marketing, and therefore about paying out high rewards). It just depends on how you personally use it.

  9. speedwell (propagandist and secular snarkist) says:

    Right, these goddamned liars and cheaters. They’re the same abusive pimps and pushers you all Stockholm-Syndrome credit-junkies are telling me I can’t have a life without, right? I don’t know who makes me sicker, the people who are just fine borrowing money they don’t have so they can get what they want NOW NOW NOW NOW NOW, or the people who shear the sheep that willingly walk right into the slaughterhouse. And before you bleat about “meeeeehdical bills” and “unexpeeeeeehcted eeeehxpenses,” tell me what you’d do if you had medical bills or emergency expenses that were past your ability to borrow and cover.

    • johnva says:

      Using credit is not the same as spending money you don’t have. You can use credit to spend money you don’t have, but that doesn’t mean that the two things are inherently linked.

      None of my cards have an annual fee or charge me anything to use them, and in fact they all still pay me to churn my spending through them. So I don’t see how that’s “abusive” on their part, or how I have “Stockholm syndrome” because I’m taking free money from them.

      As for things like medical bills: yes, there is a limit to what you can borrow. Duh. What happens to people who don’t have any access to credit when they can’t afford their medical bills? Nothing really different. In both cases, the debt would likely be discharged in bankruptcy. But the person who has access to credit could possibly get through a short-term bubble in expenses without declaring bankruptcy, because the credit allows them to pay over time.

      • speedwell (propagandist and secular snarkist) says:

        That makes sense for you, and I see your point. You have a decent and reasonable argument. I truly wish all credit users were as intelligent and enlightened as you. If they were, the face of the credit business would undoubtedly be far different. But they aren’t, and the credit industry evolved to prey on the weaknesses of their customer base. Since I have no desire to be their prey, in case I suffer a moment of financial weakness, I abstain.

        By “weakness” I mean, for example, the fact that my old workplace had an unreasonable policy that required the business traveler to pay for the airline tickets up front, and be reimbursed upon presentation of the ticket invoice. Because I do not carry credit cards, and it was manifestly in their best interest to send me to train their folks overseas, they were forced to change their policy and pay for the tickets themselves. I was not exposed to any risk of the airline or the company screwing up my payment or my reimbuirsement.

        • speedwell (propagandist and secular snarkist) says:

          By the way, I’m intrigued by the way you argue, out of one side of your mouth, that credit does not mean spending money you don’t have, and out of the other, that it forms a safety net for unexpected expenses in case you don’t have the money. I have a safety net. I pretended to pay a credit card balance for a number of months but I paid myself instead, and now I have savings equal or exceeding most people’s credit limits. And it came out of money that I earned and that I did not need to go into debt to obtain.

          • Polish Engineer says:

            I’m not sure why it’s a conflicting argument. If I have enough money in the bank cover an expense, yet chose to execute the transaction via a credit card for convenience, rewards, or something else I am not spending money I don’t have. It is true that credit cards allow people to make purchases that exceed their liquid assets, but that is not always the case.

          • johnva says:

            I have all that, too, plus I got free money from the credit card rewards.

            *I* personally don’t need credit cards as a safety net, because I have plenty of savings too. But I don’t think there’s necessarily anything wrong with using them that way in a SHORT-TERM manner. Not everyone has thousands of dollars sitting around in liquid accounts. I made that argument solely to counter your nonsense about medical bills. Yes, credit cards are not a magic solution to medical bills you can’t afford. But NOT using credit cards isn’t either.

        • johnva says:

          I’ve had to deal with the travel reimbursement for work thing too, and I LIKED that policy because it meant that I got to keep the sizable credit card cash back rewards I got from the travel spending (I was allowed to per policy). I was always reimbursed before my monthly credit card bill came due, so there was never a time that I had to be out any of my own money, thanks to credit cards (of course, I could have paid it off in full if I had had to if something had gone wrong with the reimbursement, so I wasn’t too worried about it).

          Plus credit cards just made the whole thing much easier. I could simply provide them with a copy of the statement to get reimbursed (I used a separate card so I wasn’t exposing my privacy at all). And hotels and such are less of a pain to deal with with a credit card because you don’t get large annoying holds against your own money like you sometimes do if you use debit cards there.

  10. milrtime83 says:

    jumped 18% to $59 = $9 higher

    soared 67% to $25 = $10 higher

    Interesting how the WSJ author just looked at the percentage when picking the descriptive word. “Jumped” would seem like a much lower gain when in reality it is only $1 less than the value that “soared.”

    • Griking says:

      Not to mention that the credit unions still charge less than half what traditional banks do.

      • johnva says:

        But that’s the overall average. My experience is that credit unions generally have lower fees, but are more consistent about applying them to everyone. Commercial banks generally have higher fees, but charge some of their customers nothing.

        • mac-phisto says:

          yes, this is true, but it’s because CUs are socialist in nature. since every member is an owner & every owner is one vote, it only makes sense that every owner pay what every other owner pays.

          however, many CUs are beginning to transition to a “relationship” model, which seeks to identify members that use the CU as a primary FI vs. members that simply utilize bits & pieces of the CU’s products & services. these models are designed to allow members to avoid fees based on their participation.

          • johnva says:

            I get that. And I don’t think the credit union model is without its merits. But on the other hand, right now I can pay less by having other people (the “subprime” customers) subsidize me. Spreading out the costs evenly among everyone would cost me more, as someone with good credit, because I currently pay nothing.

            Basically, it’s a choice between a model where everyone shares equally in some of the costs, and a model where the people with bad credit subsidize the people with good credit. An analogy might be a group of friends deciding how to divide up the cost of a restaurant bill. The person who ordered the most expensive thing would benefit from everything be split equally. The person who ordered the least expensive thing would benefit from everyone paying their own way.

  11. Bryce says:

    I wouldn’t be so fast to blame deadbeats or to say it’s easy to get around fees. I just did a whole bunch of research into credit card laws, practices, and history, and all of it points to the fact that credit card companies do everything they can to keep you in debt as long as possible. Read about my findings–you may be surprised by what you see: http://www.newdeal20.org/2010/08/02/credit-card-debt-and-subprime-mortgages-who%E2%80%99s-to-blame-16388/

    • johnva says:

      I didn’t find your post at all convincing. The reason is that I think it’s very easy to avoid paying fees and interest on credit cards: millions of people manage it just fine. It’s true that the credit card companies would prefer that everyone be paying them interest all the time, but so what? They haven’t turned me away yet for not doing that.

  12. barcodetattoo says:

    Did anyone else see this coming? All these card companies did was use the grace period to find new ways to rape people. God bless America..the credit slave nation.