A while back, we had some issues with our Advanta credit cards. Our business card accounts were closed with little warning. Advanta was one of those issuers that decided to shut down their credit card division due to tough business conditions.
This time around, we’re hearing rumors about what may happen to personal credit cards. You see, we carry and use Upromise rewards cards which used to be managed by Citibank. For years, we were happy with our cards, given that we were great customers who paid in full and on time, each month. Then came what we thought was a minor inconvenience: Upromise switches out their card issuer to Bank of America. No biggie for us just as long as they keep with the status quo. As it is, we like our Upromise World cards quite a bit!
Will New Annual Fees Be Applied To Credit Cards?
Except…. are credit card issuers and banks now wondering how they’re going to make up the lost revenue due to new card regulations? For a while, there was some talk that BofA was thinking of making some changes to their credit card terms, a rumor which has gotten many customers and consumer advocates up in arms. Now if this ever becomes true, and a card company decides to introduce annual fees in cards that never had fees before, I think they’ll have a lot of disgruntled customers to deal with. As a customer, I would be quite annoyed if I (a good customer) had to “cover” the lost revenue that issuers are experiencing because the CARD Act now protects higher risk customers from higher charges. Like many good customers, I really only care about having a good credit card rewards program and no annual fees to deal with, and it would be a shame if, after all these years, I end up having to do away with Upromise because of principle. And because I don’t intend to ever have to pay for the use of plastic.
Let’s place this all into context by reminding ourselves what the new credit card rules state. The Credit CARD Act of 2009 is intended to protect consumers from credit card companies’ more underhanded tricks. Here are just some of those regulations:
- Credit card bill payments will be applied to the highest interest portion of your balance rather than the portion that generates the lowest interest. This is contrary to what card companies want, which is to keep your high interest debt around for as long as possible (such as what you owe for cash advances).
- Interest rate hikes will be much more limited. You will no longer be getting rate increases for existing balances unless you fall delinquent on your account or you’re dealing with a promotional rate that expires.
- There will be limits on “over the limit fees”. This time, you won’t forget that charging over your credit limit will incur penalties and interest on those penalties; you’ll now be required to “opt in” before you’re allowed to charge beyond your credit limit.
- Credit card terms and conditions can only be changed after you’re given 45 days’ notice. So those with rewards points, for instance, can be alerted to the potential expiration of their rewards, way in advance. Hopefully this will mean “no surprises”.
Many of these rules have already passed. Now as these changes are assimilated into the banking and credit card industries, the question that many astute industry watchers, insiders, commentators and even consumers have is this: will the institutions decide to try to neutralize the negative effect of any new rules upon their bottom line? While many of the credit card regulations are now modified to protect many customers, there are still loopholes here that can be exploited by card companies to help them make up for lost revenue. For example, rate increases cannot be imposed on anyone unless they fail to make a payment for at least 2 months. However, card companies are allowed to add new fees and charges without being challenged. So it sounds to me that if one revenue channel has been affected, these companies can make up for it by simply imposing new fees on their customer base! If this is the case, can they strike us with this approach at anytime?
A Bank of America Hat Trick
Some years ago, there was an earlier rumor that BofA would be trying to sneak one past us based on how they interpret a particular rule in the CARD Act. With the company allegedly intending to introduce new fees with their cards, BofA insisted that “annual fees” are not the same as “interest rates”. So since the CARD Act protects us from unexpected changes in interest rates, we’re supposed to think that annual fees are something else altogether and are therefore, not subject to the same rules.
Then again, there’s supposedly at least one court case that does establish a loose equivalence:
Interest = Annual Fees.
as per The Consumerist. But this is something for the legal eagles to handle.
Nevertheless, I’ve since heard that Bank of America will try to “test” their customer base with the new annual fees. It seems that they’ve already imposed new annual fees upon those who are their highest risk customers.
The card companies are always going to be searching for ways to grow or maintain their revenue. They’re going to find this money somewhere. They may have realized that they may not be able to get away with slapping their good customers with extra charges, as it is quite likely that such customers will abandon them for the nearest No Annual Fee card. For now, they’ve decided to back off from penalizing their best customers.
Some of you may wonder why annual fees are such a big deal. In my opinion, it’s because one fee can easily be followed by another, then another. Who among us will simply roll around and take it, thinking that $30 a year isn’t really “that bad” in the whole scheme of things? The worst case scenario is that this sets a precedence for companies to start raising annual fees because they can no longer get away with much else. Here’s hoping we don’t see this trend develop.
Created: 11/10/2009; Updated: 4/30/2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 11 comments… read them below or add one }
This is a blessing in disguise for you. The Upromise card only offers 1%. Try the Schwab rewards Visa instead; it deposits 2% cash back automatically in your Schwab account every month. That 2% is true cash; you can send it to another bank account via online transfer. It is worth the switch.
-Erica
Thank for your information about credit cards. Credit cards are very necessary. With the development of technology, credit cards are very needed. I often make payments online through paypal, although already have paypal, credit cards are still needed at times.
This is one of the reasons that i am weary of this plastic. Another reason is that i dont fully trust myself with them because i might be tempted to buy everything that i see on the internet. I read somewhere that this is the major cause of bankruptcy because people see it as money substitute rather than a money tool. I am planning on getting one in the near future but after careful consideration and research. informative posts like this really help
@Erica,
Thanks for the recommendation! Schwab is a good option, although I am leaning towards American Express or Chase rewards cards. I know a few people who have these cards and they all seem to be pretty happy with their choices. I’d have to check to see how to optimize these rewards based on our spending habits (e.g. would a flat 2% reward be better than one that pays 3% or 5% in individual spending categories?).
I like the Upromise program because I support their vision/premise. I made some tradeoffs that way.
@KenyanTykoon,
I actually love plastic, and I make sure I view and use it for what it is — a money tool. Whenever I use it, I *know* I am using my own money to spend. I never really understood how credit cards could be mistaken for “free money”.
I too am a BOA customer and it’s my longest standing credit card. If they begin charging an annual fee I’ll likely try to negotiate my way out of the fee and if that doesn’t work, I’ll be closing my account. For me it’s the principle of the matter.
I also feel that if more people take a stand, close their cards, and stop doing business with them all together (I closed my checking and savings with them earlier this year because of their unscrupulous business practices) they will finally get the picture that their customers are real people, not just numbers and pawns in their game to make as much money as possible. You have to treat others as you wish to be treated, and BOA would not be happy if they received the same treatment they give their customers.
If you make your payments in full and your cards don’t have any fees, then you are a very bad customer for the bank 🙂
I recently applied for and was approved for the American Express TrueEarnings Card with a minimum of 1% cash back on everything and up to 3% cash back on certain categories. That card is my personal favorite but I also have a Motley Fool BOA Visa Card that pays me 1% cash back on everything that I use as well.
One thing that many people do not realize about BOA that may change your outlook somewhat is that the BOA credit card division has been losing a ton of money because of credit card defaults for the last 5 quarters in a row (check my link for my report on this). It does make sense that they would start to add annual fees or do something to stop losing money so you really can’t blame them I guess.
I understand that credit card companies are trying to “stay afloat” here, but I doubt annual fees are where they should hit consumers (especially in light of the new CARD Act). They’ll just alienate their loyal customers, especially those whom they can rely on to stick to a regular payment schedule. Unless that special species of credit card that has no annual fees just goes extinct, you’ll have people switching to such cards in droves if their current issuers pull a fast one on them. BOA has very likely evaluated this risk and may have decided it’s worth trying out anyway.
Get this: BoA lowered the credit limit on one of my cards to BELOW the current balance then charged me an overlimit fee! They reversed it after I called them, did it again, then reversed that charge. The second one required my explaining the situation three times.
As far as paying off your balance each month being a bad customer for the bank — not true. Banks get paid every time you use their card. A considerable amount of revenue comes from credit and debit card purchases (I used to work in a bank.)
I’ve written some articles about credit cards that some people might find useful. I would start with Balanced Balance Transfers.
Not surprising considering Citi is hitting their bank account holders with a monthly fee trying to make up from the loss of revenue caused by the new credit card legislation.
Very happy with my A/E Costco business (you have a business -self proprietorship) – cash back card…4pct back on gas! 3%, 1% min. tiers on all other purchases… Can also get a few basis points higher on Capital One bank saving product as a bonus.
And, becoming member of Costco for a minimal fee, can partake in discounts, purchases, etc…, along w/getting the A/E card for free 🙂 .
Also, Capital One visa 1-1.25% back on their visa…. Always enjoy reading your blog, just wanted to give back some info 🙂 . Keep up the great work.