July 31, 2010
Just months after historic legislation banned certain billing practices, card issuers have dreamed up new ones designed to trip up consumers.'Saddled With Late Fees'Inactivity Fees Return
As expected, issuers also are raising basic fees in the wake of the Card Act, in some cases significantly. Many credit-card companies, for example, are increasing their balance-transfer charges sharply. "We are seeing an increase across the board in fees because card companies are sensitive about their ability to price for risk," says Mr. Robertson of the Nilson Report.
Last June, for example, J.P. Morgan's Chase unit alerted customers that its maximum balance-transfer fee was rising to 5% from 2% on a wide range of its cards.
"In a higher-loss environment, it's important that we are prudent with our balance-transfer offers," says Stephanie Jacobson, a spokeswoman for the bank. She adds that "We often do have lower rates in a competitive marketplace."
Companies are raising their minimum finance charges, too. Before the Card Act, the average minimum monthly finance charge was about 50 cents, according to Nick Bourke, director of the Safe Credit Card Project at Pew. Now, he says, those fees can reach $1.50.
That difference might not seem like a lot, but it adds up: Borrowers pay $430 million a year in minimum-finance charges alone, according to the Center for Responsible Lending.
The Card Act's provisions are being implemented in stages, with the last phase taking effect on Aug. 22. After that, issuers will no longer be able to charge "inactivity fees," or extra charges for people who don't spend a certain amount each year.
So companies are dressing them up in other ways.
Citigroup, for example, has started charging some of its customers an annual fee, which can be waived if a customer's card activity exceeds $2,400 a year.
Tristan Denyer of San Francisco says he was surprised when he got a notice that Citigroup was instituting a $60 annual fee on his card. Mr. Denyer, 37, a senior Web designer, says he rarely carried a balance on his card, and refused to rack up the $2,400 in charges necessary to erase the fee.
"I figured this was just a tactic to get me to spend more and give them more money," Mr. Denyer says. He says he decided to close his account.
Citigroup's Mr. Wang acknowledges that Card Act rules forbid the waiving of annual fees based on "a customer's annual spending on the card." He adds, however, that "the rules will not prohibit cash-back rewards or similar incentives that encourage account usage."
Another potential trap: low-credit-limit cards, which are popular among college students.
The Card Act says a card's total annual fees can't exceed 25% of a borrower's credit line. But some issuers may be evading the fee restrictions by charging an upfront processing fee that doesn't fall under the 25% cap.
First Premier Bank, headquartered in Sioux Falls, S.D., offers several low-credit-limit cards. Its Centennial card comes with a $300 limit and a $95 upfront processing fee.
Melinda Robinson of Lorena, Texas, learned firsthand how rapidly fees could eat into her credit limit. After receiving a card with a $250 credit limit from First Premier, she says, she was immediately charged $170 in combined fees. When she tried to use the card for the first time, she exceeded her credit limit, triggering more fees.
"When they first send you the card, they automatically charge you fees that eat up half of it," says Ms. Robinson.
First Premier Bank's president and chief executive, Miles Beacom, says the $95 processing fee doesn't violate the Card Act because it is assessed before the account is opened. He adds that the fee offsets the risk associated with offering these cards to "high-risk individuals."
Foreign-transaction fees are on the march as well. The average fee for foreign transactions has jumped to 3% of the transaction from roughly 2% in 2008, according to Ben Woolsey, director of marketing and consumer research at Creditcards.com.
Some card holders are finding they don't even need to leave their living room to get hit with a foreign-transaction fee. Ruth Ann Sando, a small-business owner in Washington, says she has been burned repeatedly on her Visa card issued by Pentagon Federal Credit Union, the third-largest credit union in the U.S.
Ms. Sando used to do a lot of business with AbeBooks, an online retailer. But she found that she was getting hit with foreign-transaction fees even though her purchases were in dollars. That is because while the seller and shipper were based in the U.S., Abe, headquartered in Canada, provides the forum for book sellers and collects a portion of the proceeds from all sales.
So late last year, Ms. Sando says, she decided to stop buying from the site altogether. "Not buying books is the only way I can protest the fee," she says.
"The fee is legal, but all these fees circumvent the [Card Act's] goal of clear and straightforward pricing," Mr. Woolsey says.
Pentagon Federal Credit Union says some of its cards carry a foreign-transaction fee of 2% of the U.S. dollar amount of the transaction.
Fighting Back
While the credit-card landscape may seem littered with landmines, there are ways to guard against some of the worst pitfalls. The first and simplest: Make your card payments on time.
Second, say consumer advocates, people should dispute fees directly with the issuer when they believe something is amiss.
"Cardholders would be surprised at how much they can raise hell and get a change," says Mr. Condon, who says he immediately contacted Discover after the late charge appeared on his statement.
They might have to make repeated calls, however.
"While the Credit Card Act did make great strides in protecting consumers, it in no way closed all avenues for cardholders to get hit with fees," says Ms. Wu, from the National Consumer Law Center. "It's a first step."
Just months after historic legislation banned certain billing practices, card issuers have dreamed up new ones designed to trip up consumers.'Saddled With Late Fees'Inactivity Fees Return
As expected, issuers also are raising basic fees in the wake of the Card Act, in some cases significantly. Many credit-card companies, for example, are increasing their balance-transfer charges sharply. "We are seeing an increase across the board in fees because card companies are sensitive about their ability to price for risk," says Mr. Robertson of the Nilson Report.
Last June, for example, J.P. Morgan's Chase unit alerted customers that its maximum balance-transfer fee was rising to 5% from 2% on a wide range of its cards.
"In a higher-loss environment, it's important that we are prudent with our balance-transfer offers," says Stephanie Jacobson, a spokeswoman for the bank. She adds that "We often do have lower rates in a competitive marketplace."
Companies are raising their minimum finance charges, too. Before the Card Act, the average minimum monthly finance charge was about 50 cents, according to Nick Bourke, director of the Safe Credit Card Project at Pew. Now, he says, those fees can reach $1.50.
That difference might not seem like a lot, but it adds up: Borrowers pay $430 million a year in minimum-finance charges alone, according to the Center for Responsible Lending.
The Card Act's provisions are being implemented in stages, with the last phase taking effect on Aug. 22. After that, issuers will no longer be able to charge "inactivity fees," or extra charges for people who don't spend a certain amount each year.
So companies are dressing them up in other ways.
Citigroup, for example, has started charging some of its customers an annual fee, which can be waived if a customer's card activity exceeds $2,400 a year.
Tristan Denyer of San Francisco says he was surprised when he got a notice that Citigroup was instituting a $60 annual fee on his card. Mr. Denyer, 37, a senior Web designer, says he rarely carried a balance on his card, and refused to rack up the $2,400 in charges necessary to erase the fee.
"I figured this was just a tactic to get me to spend more and give them more money," Mr. Denyer says. He says he decided to close his account.
Citigroup's Mr. Wang acknowledges that Card Act rules forbid the waiving of annual fees based on "a customer's annual spending on the card." He adds, however, that "the rules will not prohibit cash-back rewards or similar incentives that encourage account usage."
Another potential trap: low-credit-limit cards, which are popular among college students.
The Card Act says a card's total annual fees can't exceed 25% of a borrower's credit line. But some issuers may be evading the fee restrictions by charging an upfront processing fee that doesn't fall under the 25% cap.
First Premier Bank, headquartered in Sioux Falls, S.D., offers several low-credit-limit cards. Its Centennial card comes with a $300 limit and a $95 upfront processing fee.
Melinda Robinson of Lorena, Texas, learned firsthand how rapidly fees could eat into her credit limit. After receiving a card with a $250 credit limit from First Premier, she says, she was immediately charged $170 in combined fees. When she tried to use the card for the first time, she exceeded her credit limit, triggering more fees.
"When they first send you the card, they automatically charge you fees that eat up half of it," says Ms. Robinson.
First Premier Bank's president and chief executive, Miles Beacom, says the $95 processing fee doesn't violate the Card Act because it is assessed before the account is opened. He adds that the fee offsets the risk associated with offering these cards to "high-risk individuals."
Foreign-transaction fees are on the march as well. The average fee for foreign transactions has jumped to 3% of the transaction from roughly 2% in 2008, according to Ben Woolsey, director of marketing and consumer research at Creditcards.com.
Some card holders are finding they don't even need to leave their living room to get hit with a foreign-transaction fee. Ruth Ann Sando, a small-business owner in Washington, says she has been burned repeatedly on her Visa card issued by Pentagon Federal Credit Union, the third-largest credit union in the U.S.
Ms. Sando used to do a lot of business with AbeBooks, an online retailer. But she found that she was getting hit with foreign-transaction fees even though her purchases were in dollars. That is because while the seller and shipper were based in the U.S., Abe, headquartered in Canada, provides the forum for book sellers and collects a portion of the proceeds from all sales.
So late last year, Ms. Sando says, she decided to stop buying from the site altogether. "Not buying books is the only way I can protest the fee," she says.
"The fee is legal, but all these fees circumvent the [Card Act's] goal of clear and straightforward pricing," Mr. Woolsey says.
Pentagon Federal Credit Union says some of its cards carry a foreign-transaction fee of 2% of the U.S. dollar amount of the transaction.
Fighting Back
While the credit-card landscape may seem littered with landmines, there are ways to guard against some of the worst pitfalls. The first and simplest: Make your card payments on time.
Second, say consumer advocates, people should dispute fees directly with the issuer when they believe something is amiss.
"Cardholders would be surprised at how much they can raise hell and get a change," says Mr. Condon, who says he immediately contacted Discover after the late charge appeared on his statement.
They might have to make repeated calls, however.
"While the Credit Card Act did make great strides in protecting consumers, it in no way closed all avenues for cardholders to get hit with fees," says Ms. Wu, from the National Consumer Law Center. "It's a first step."
Closed November 2010