A Credit Card Fee Bonanza

Posted by: Jessica Silver-Greenberg on June 10

President Barack Obama signed a piece of critical consumer protection legislation last month: the Credit Card Accountability, Responsibility and Disclosure Act. The law reigns in credit card companies’ billing practices and limits the fees that banks can charge consumers.

But where there is a will for fees, there is a way. Don’t think for a second that this legislation will usher in a fair credit-card playing field where card holders can blithely borrow money without the threat of fees. Credit-card companies, analysts say, will substitute one fee for another.

For instance, the newly minted card law—which goes into effect before year’s end—forces card companies to ask customers whether they would like to go over their credit limit and get charged a fee, or whether they would rather be blocked from swiping their plastic once they have exhausted their limit. In the past, credit-card companies would allow a cardholder to exceed their credit limit and then promptly ping them with an over-the-limit fee. So over-the-limit fees may be on their way to extinction, but new fees will rise to replace them.

U.S. shoppers who buy goods from foreign-based companies will now have to pay a 2% transaction fee every time they deal with a company off American shores. It doesn’t matter if customers never leave the safety of their living rooms. Once a card holder purchases anything from a foreign company, many card companies will start levying a fee.

Over the past decade, card companies have been penalizing customers who use their cards while traveling. The banks argue that they bear the cost of currency conversion and so need to offset that cost with fees. But before now customers didn’t have to deal with fees unless they left the country. Those days are over.

I actually got a letter from Bank of America in April which expounded on the new fee. The letter explained that Bank of America would be “expanding the definition of foreign transactions in U.S. dollars if they are made or processed outside of the United States.” Bank of America isn’t alone. Other banks have followed suit.

The bottom line: the new credit-card landscape is littered with land mines, hidden fees, and charges, so watch out.

Reader Comments

Bob

June 10, 2009 06:46 PM

If your total lifetime earnings is $2 million, and you pay cash for everything, then you'll end up spending the whole $2 million on yourself.

If your total lifetime earnings is $2 million, and you charge everything on a credit card you'll end up spending $1 million on yourself and spending the other $1 million on credit card interest payments.

David Thompson

June 10, 2009 08:16 PM

It is of interest to me that the credit card companies are in a no-lose situation. they collect on both ends of the transaction. At the merchant level they have introduced cards that attract very high transaction rates, for example,the Signature card. More and more signature cards are being pushed out to the public. They carry an annual cost to the card-holder too. As far as international transactions are concerned, the card was the preferable method of payment for my own purposes but it may be the time to go back to the traveler's check.

Holger

June 10, 2009 09:32 PM

IT amazes me to see the apathy of the american consumer. The same americans that complain about taxes at every chance - income, property or sales tax. Seem to believe the percentages paid by merchants and customers to Visa, paypal american express are perfectly acceptable. Hello all you unemployed Harvard MBA's, anyone dare to create a convenient currency for less than 2-4% of a transaction fee?

I sure hope someone starts competing on the "cost of money".

Holger

June 10, 2009 09:32 PM

IT amazes me to see the apathy of the american consumer. The same americans that complain about taxes at every chance - income, property or sales tax. Seem to believe the percentages paid by merchants and customers to Visa, paypal american express are perfectly acceptable. Hello all you unemployed Harvard MBA's, anyone dare to create a convenient currency for less than 2-4% of a transaction fee?

I sure hope someone starts competing on the "cost of money".

babyface

June 10, 2009 10:23 PM

We'll just cancel the cards if the banks violate a previously arranged agreement. Fuck the corporations in this country.

dormand

June 11, 2009 12:49 AM

One can expect to pay fees when services are received. Bank of America might find its actions preserved for history in case studies as it made the choice to severely slash credit limits on exceptionally well qualified customers.

With the slashed credit lines, many with FICO scores exceeding 800 and who had never been late with any payment on any account found themselves with credit line utilization of 99%, whereas prior to the credit limit reduction, utilization had been under 25%.

This spike in utilization toppled the FICO scores of many, blocking from refinancing their mortgages during that window of time which offered the very lowest mortgage rates and thus mortgage payments we will see for the next half century.

Bank of America, you might have missed that key day in Banking 101, when they explained that when you cut loan exposure, you do it on those accounts having the highest risk, not the peach accounts which every financial institution in the country would give its eye teeth to have as clients.

Most of these clients will be gone forever to B of A, particularly after its choice to load up some of its elderly widow clients with dross from B of A underwriting ventures on auction rate securities, which institution investors had refused to buy.

Frank Keating of Phoenix went to prison for similar actions against the elderly naive clients of his S&L.

Dealing with a fiduciary institution requires that one have a relationship one can trust. B of A's actions and poor choices have caused it to lose the confidence of hundreds of thousands of exceptionally solid clients.

To see the magnitude of the outrage, Google the following to see the number of outcries enraged at B of A actions:

"bank of america" + "auction rate securities"

then

"bank of america" + "credit limit"

William

June 11, 2009 03:13 AM

Crooks. The industry has become just a bunch of crooks.

Newt Rox

June 11, 2009 04:49 AM

Yes, like a tobacco company meeting its challenges, the credit card companies were announcing new fee schedules,
including the foreign transactions, partly anticipating this law. But this law is a step in standardization.
It amazes me how encumbered with processing delays electronic payments were, but how quickly electronic debits
are processed. This law will mitigate that.

What I'd like to see littering the landscape is compliance with usury law and a little bit of respect for customer
privacy.


"Frankly, they own the place." Sen. Dick Durbin on banking industry's influence on congress.

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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