Ever since the Credit Card Act of 2009 hit the floor of the House of Representatives, credit card companies have been scrambling to rework their business models. The result: millions of consumers are paying higher interest rates, credit limits have been slashed, and millions of people are being denied for new credit. These new “consumer friendly” credit card laws have led to increased fees for credit card transactions ranging from international purchases to balance transfers. And 0% introductory rates, particularly 0% balance transfer offers, have been reduced dramatically.
Now, thanks to the meddling hand of Uncle Sam, annual fees will soon be added to the lists of new costs levied on American consumers. According to Forbes, Bank of America will soon be charging annual fees on some credit card accounts.
Prior to the passage of the Credit Card Act, annual fees were generally attached to two type of credit cards: those issued to subprime consumers and those attached to super-prime rewards credit cards. American Express has long charged hefty annual fees for its top notch rewards programs-and for good reason. Those programs offered consumers substantial benefits that outweighed the cost of the annual fee.
Unfortunately, credit card companies such as Bank of America will soon be charging fees ranging from $29-$99 starting next year to selected accounts based on “risk and profitability.” With this broad mandate, there are far reaching implications for consumers with credit that ranges from average to excellent.
For example, if you pay your card in full every month and thus generate no interest income for the bank, you may be hit with an annual fee for the privilege of using your credit card. And if you used to generate the occasional late or over-the-limit fee, you may be assessed an annual fee because you are risky.
Ultimately, Bank of America will not be the only credit card company to institute annual fees. In all likelihood, annual fees will become the norm in the coming years. And consumers will have little say in the matter. Of course, if consumers react negatively to annual fees, the trend may not catch on. Unfortunately, most of us will have little choice and end up paying some kind of annual fee so banks can recapture the revenue that restrictive new credit card laws are taking from their pockets.
As I’ve written many times before, the Credit Card Act was nothing more than a sideshow designed to show Americans that the Government was fighting back against evil credit card companies. In the end, the Credit Card Act will prove to be nothing more than a tax on responsible consumers. So when I get a notice from Bank of America stating that they will be charging me an annual fee, I’m not going to be mad at CEO Ken Lewis. I’m going to be mad at our elected officials for giving Bank of America no other option to operate a credit card business profitably.