Credit card companies have figured out how to replace old fees with a new bag of fees.
This comes just months after a huge overhall in credit card billing practices signed into legislation by the Obama Administration.
The Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the Card Act 2009 was enacted to regulate the credit card industry.
The Card Act made major changes in interest rate increases and billing practices of credit card issuers.
The changes blasted a hole in fees the credit card industry collected for many years. According to David Robertson, publisher of the Nilson Report, the Card Act is expected to wipeout about $390 million a year in fee revenue. It is no wonder credit card companies are creating new ways to replace the lucrative fees.
Victor Stango, an associate economist with the Federal Reserve Bank of Chicago and a professor at the University of California, Davis, says “Card companies are figuring out how to replace old fees with new ones…It’s a race between regulators writing ever-more-complex laws and credit-card companies setting up ever-more-complex fees.”
Here are a few ways banks are recouping fees:
Increased Fees. One of the ways credit card issuers are recouping lost fees is through a rise in annual fees for bank credit cards and a rise in cash advance and balance transfer fees.
Professional Cards. Some banks are offering “professional cards” to consumers. These so-called professional cards are similar to business credit cards but have the same terms as consumer credit cards. The biggest difference is the business credit cards are not regulated under the Card Act 2009. These professional cards are even being offered to consumers who do not have a business.
Prepaid Cards. Prepaid cards are typically tied to a bank but there are other sources that provide prepaid cards. Prepaid cards issued by private funding groups are not regulated under the Card Act. The prepaid card coming from private funding groups usually have some basic consumer protections against fraud or theft but they are not governed by the Card Act.
Some of these cards can have high activation fees such as the recent prepaid card promoted by the Kardashian sisters. This prepaid card came with such high fees that Connecticut Attorney General Richard Blumenthal publicly denouced the card as “predatory.” The Kardashians’ have since terminated their affiliation with the prepaid card that came with a $99.95 annual fee, $7.95 monthly fee, ATM withdrawal, bill payment, speaking to live operator, loading and card cancellation fee.
Rebate offers. Be careful when using a rebate card offer. Credit card issuers who promote rebate offers know those offers are not regulated under the Card Act. This means a rebate offer such as a refund on finance charges when customers pay on time can be revoked at any time resulting in increased charges for the cardholder.
Balance Transfer. The balance transfer fee has doubled for some credit card issuers. Chase raised their balance transfer fee from 2% to 5%.
Processing Fees. The Card Act protects consumers from exhorbitant annual fees by limiting annual fees to not more than 25% of the cardholder’s credit limit. Some credit card issuers have found a way around this rule by charging upfront processing fees that are not covered under the 25% cap. Some credit card issuers are charging as much as $95.00 in upfront processing fees. These fees are charged to the credit cardholder before the cardholder receives the actual credit card.
Credit cards issuers are under scrutiny with the enactment of the Card Act and the soon to come Consumer Financial Protection Bureau (CFPB) created by special advisor, Elizabeth Warren. You have some power to fight against fees you think are unfair. Nothing is set in stone and credit card issuers can be flexible if you complain. Take the time to call your credit card issuer if there is a fee you do not agree with, you just may come out on the winning end.