According to a statement released by new CEO Brian Moynihan, “Economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.”  Despite this bleak assessment, Moynihan did note that Bank of America is, “encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer business.”

Bank of America will likley need the economy to improve substantially for a turnaround in its credit card business to occur.  In December, Bank of America reported a 13.53% charge off rate that is more than 40% higher than charge-off rates at Chase (7.11%), American Express (7.5%) and Discover (8.68%).

Credit card profits will likely be many quarters away as a new round of credit card laws is slated to take effect on February 22nd.  Under these new laws, banks will be restricted from raising rates on consumers unless they are delinquent for 60 days, a factor that will limit all bank’s from repricing risk in their portfolios.

For complete details on Bank of America’s credit card woes, please refer to Bank of America’s fourth quarter earnings press release:  http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-irhome

-Jeffrey Weber

Given the 4% balance transfer fee, this was either a decent offer or a relatively poor one.  If she were to get the 2.99% balance transfer rate, she would effectively be charge 6.99% for the balance transfer.  Other companies that offer 0% rates for a year and charge 5% fees are clearly a better deal, as this would save her about $100 on a $5,000 balance transfer.

This balance transfer offer, with its tiered structure, essentially leaves applicants in the dark about what credit card terms they will actually get.  And, unfortunately, it looks like this is the future of balance transfer offers.  Credit card companies have been cutting back on balance transfers since late 2008, and the new credit card laws are causing them to test new pricing strategies, with higher fees and the possible end of 0% rates ahead.

If you are a recipient of a 0% or 2.99% offer, you may want to consider checking your credit report before submitting an application.  If you have a credit score above 750, you stand a much better chance of getting a 0% APR for 12 months instead of a 2.99% APR.  However, if you do not have excellent credit, your best bet may be to apply for a credit card that offers a 0% rate to all approved applicants.  This way, you know you are getting the rate you desire.

To learn more about current 0% balance transfer credit cards, please use the navigation on your left to compare offers and apply online.

Editor’s Note:  The one positive thing about this credit card offer is the fact that it shows credit card companies are starting to mail out deals.  I remember getting new offers from Bank of America multiple times a week two years ago.  Today, its become rare to see any offers at all.  Perhaps credit card companies are starting to lend again, albeit at much higher rates than many of us have become accustomed too.

Unfortunately, Bank of America will not be the only company charging annual fees.  They are just the first company to announce that they will charge fees.  A decade ago, many credit card companies charged annual fees.  These fees disappeared when increased competition led banks to drop fees and offer long term 0% APR offers.  However, as credit card companies seek out ways to profit from lending after the new laws take effect, the annual fee may become increasingly common, and credit card offers without annual fees will likely come with higher interest rates and no rewards programs.

Credit card companies have already started charging higher interest rates to all types of consumers, including those with excellent credit.  In fact, current interest rates are around the same level they were two years ago when the Prime Rate was 4 percentage points higher.  Ultimately, these higher interest rates, along with annual fees and trimmed down rewards programs are likely to become commonplace in the coming months.

The question is thus not whether annual fees will be common, but when they will become common and how high will they go.  A $29 annual fee is reasonable; a $99 annual fee is not.  Of course, if those annual fees are combined with lower interest rates, it may be worthwhile to pay one.  However, if interest rates and annual fees continue to climb, the people banks want to have as customers will turn their backs and use cash or debit cards.

Hopefully, the backlash against Bank of America credit cards with annual fees will lead other companies to abandon the idea.  Unfortunately, many people who carry credit card debt and can’t get a balance transfer credit card are likely to have no option but to pay up.

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.

At present, no other major credit card issuer has stepped up and promised to halt similar tactics, many of which will no longer be permitted once new credit card laws take effect.  However, recent data collected by Smart Balance Transfers seems to indicate that credit card companies have become less aggressive in their attacks on consumers as the volume of credit card complaints we receive has fallen substantially.

Unfortunately, the damage has already been done.  Apart from the unprecedented slashing of credit limits, credit card companies have done everything from tripling interest rates to tripling monthly minimum payments as a way to get back the money they have lent out to consumers at low rates.  Many of these tactics have pushed consumers to the brink, perhaps contributing to record high default levels that are killing the profits of credit card issuers.

While Bank of America’s decision to play nice is a step in the right direction, one of the major problems facing consumers with credit card debt is the lack of available 0% and low rate balance transfer offers as well as more stringent application standards.  This has prevented many consumers who have been hit with rate increases from securing lower temporary rates.  Hopefully, credit card companies will return to the business of lending money soon.  Otherwise, the real problem facing consumers-and our economy-will be the lack of low cost credit available to consumers.

Sources:  http://online.wsj.com/article/SB125487928754069787.html?mod=article-outset-box

During the past year, I’ve heard from hundreds of consumers who weren’t sure what to do.  However, a comment posted today reminded me just how important it is to opt out of rate increases if you carry a balance that you cannot quickly repay.  Here is a horror story posted by Gale:

“I have a Bank of America card. I have payed my payments on time and have never gone over my limit. My apr was 7.9% for years. They just recently they decided to raise my apr to 23.9% it has doubled my payments. I have called them to ask that they lower it. They said they could but then I have to stop using it or my new purchases would go to the apr of 23.9% I said well I dont use my card much because the balance is high and I am trying to pay it down. But however I do have my gym membership and my ez-pass coming out of it and I need it for that. So not using is not possible because I need it for automatic payments. I figured well I dont have much new purchases so it wont be that big of a deal. Little did I know that with my next purchase they were not only going to charge my new purchase 23.9% but the whole amount on my card. I called them again and told them that this was not made clear to me by their representative. So I again asked them to please lower my apr. They told me no and there is nothing they can do. I have spent hours on the phone trying to find someone in the company to help me.”

As you can see, Gale got trapped in the opt out fine print.  And, unfortunately, her credit card balance was around $12,000.  At her new interest rate, she’ll be paying $2868 a year in interest as opposed to $948.  And her payments will increase substantially, as her monthly interest bill will exceed $200.

Gale’s story only got worse.  She was unable to qualify for a good balance transfer credit card.  In fact, the credit card she tried to transfer her balance to gave her a $150 transfer limit!  Unfortunately, Gale may be forced to use a credit counseling service or take out a loan to pay back her debt.  Its truly a shame that this occurred, and her story will hopefully encourage others to opt out of rate increases without hesitation on cards with substantial balances.

During the past half decade, credit card companies were engaged in a battle to win new customers.  This was great for consumers, who were offered long term 0% interest rates and often charged little to no balance transfer fees.  As the credit crunch intensified last summer, companies began eliminating no fee balance transfer deals.  By fall, companies began to remove the limit on balance transfer fees.  Prior to the fall, most companies charged a maximum fee of $75 per transaction.  Anyone transferring less than $2,500 paid 3%, while those transferring more simply paid $75. 

Before the ceiling was lifted on balance transfer fees, a person transferring $10,000 would have paid a maximum fee of $75.  After the fee cap was removed, the cost skyrocketed to $300.  With 4% balance transfer fees, the cost to transfer $10,000 is now $400, a whopping 533% increase in less than one year.

Nevertheless, balance transfer fees have always been more of a nuisance than a deterrent.  Paying 3% or even 4% is a pittance compared to paying 15% or 19%.  Unfortunately, the next element of the balance transfer house of cards to fall will likely be the 0% APR.  Already, a number of companies have reduced the duration of 0% rates from 1 year to as little as 6 months.  Additionally, the major companies are requiring much higher credit scores to qualify for these deals.

Ultimately, the next few months will prove very telling.  Based on the trends that have developed in the past year, it is likely that balance transfer fees will rise across the board and 0% rates will be reduced to six month periods or replaced with 2.9% rates or higher.

Unfortunately, at a time when consumers could benefit most from 0% rates (and banks can borrow money for close to 0%), 0% balance transfers are quickly disappearing.  Thus, as I’ve warned many times before, lock in a 0% interest rate while you still can.  And do it with a good credit card company that offers a low long term APR after your 0% period expires.

First on the list are ATM cash advance fees, check cash advance fees (yet another reason to put balance transfer checks in the shredder), direct deposit cash advances, and wire transfer purchases.

Now, while even I don’t quite know what would trigger a wire transfer purchase, I’ll be careful not to do one.  Not only will it incur a 4% fee, but it will also be charged the cash advance rate, which is often in the low to mid twenties, regardless of your regular interest rate.

In addition to the percentage increases for all of these fees, the new minimum fee for any of these transactions has been raised from $5 to $10.  While this might not seem like much, it can add up, especially for very small transactions.  Here’s a prime example:  if a person were to take a $100 cash advance, they would pay $10, plus 4%, or $4.  The total $14 fee amounts to 14% of the transaction.  And if this transaction isn’t paid in full, you’ll also be charged a hefty 20% plus interest rate.

All in all, cash advances should be avoided at all costs.  They weren’t a good deal before, and they are even less so today.  So unless you’ll be evicted if you don’t take one, avoid cash advances.

The disturbing issue is the increase in balance transfer fees from 3% to 4%.  Bank of America is the first major bank to make this 33% increase.  But it is truly only a matter of time before other banks follow suit.  After all, isn’t the whole financial mess a product of banks copying other banks in a quest to make a few extra dollars.

By raising balance transfer fees to 4%, Bank of America is setting a precedent.  However, it could be worse.  They could have stopped offering 0% balance transfer credit cards altogether.  Now, that option is probably still on the table at many banks.  Already, we’ve seen 0% intro periods decline sharply.  Soon, they may disappear altogether and 1.9% or 3.9% balance transfers may become the norm.  Hopefully, these higher intro rates will not come with steep balance transfer fees. 

Unfortunately, however, bailing out consumers with free money for 12 months isn’t going to bail out the banks.  And the banks are more interested in bailing themselves out than their customers.

So, as has become the norm recently, I will end this posting by imploring anyone who stands to benefit from a 0% balance transfer to take action now.  Its only a matter of time before you won’t have the option any longer.

Earlier this week, a visitor reported that Chase will also be raising interest rates across the board, although our research has yielded mixed responses on the subject.  (See Is Chase Raising Credit Card Rates on Everyone? for more details)

While its hard to predict if other companies will follow Bank of America’s lead, we’ve been concerned for quite some time that measures like these will be taken.  When credit flowed freely, credit card companies constantly competed to offer consumers the best deals.  Now that a credit crisis is here, the exact opposite appears to be happening, as credit card companies seem to be fighting over who can offer consumers the worst deal.

While Bank of America cardholders that are in danger of rate increases have two months to reduce their balances, everyone that carries a balance on their credit cards needs to focus on paying down their balances as quickly as possible or locking in a 0% interest rate on balance transfers while they still can.

For information on credit cards that still offer 0% balance transfers, please see the balance transfer credit card section of this website where you can compare deals and apply online.

The Rise of Balance Transfer Fees During the Credit Crunch

At this time last year, Bank of America offered no fee balance transfers tied to credit cards with 0% introductory rates that lasted 6 months.  In late 2008, Bank of America increased these fees across nearly every card, to a flat 3% fee with no maximum.

Bank of America was not alone in raising balance transfer fees last year.  Discover, which had offered no fee balance transfers for a number of years, began charging a 3% balance transfer fee with a $75 maximum in 2008.  Later in the year, Discover eliminated the $75 fee limit and began charging a full 3%.

Citibank was one of the first banks to charge a full 3% fee with no limits, though in early 2008 it still offered a handful of credit cards that charged no balance transfer fees.  Today, they continue to charge 3% fees.

In 2008, Chase also raised the balance transfer fee on many of its credit cards, eliminating the $75 maximum fee and charging a full 3%.

Impact on Consumers

Rising balance transfer fees pose a number of issues for consumers, though the main problem may be psychological.  Increasing balance transfer fees from 3% to 4% will cost consumers $10 for every $1,000 they transfer via 0% balance transfers.  A person with a 15% interest rate who transfers a balance to a credit card that offers a 0% APR for 1 year will save approximately $110 a year per $1,000 transferred if there is a 3% fee vs. $100 a year with a 4% fee.  In the long run, getting a 0% balance transfer is going to provide substantial savings so long as fees don’t reach 6%.  Unfortunately, a 4% fee may be a deterrent, causing consumers to defer transferring balances. 

It is this psychological effect that may do more damage to consumer wallets than the fee increase.  A consumer with $10,000 on a credit card with a 15% interest rate may get sticker shock when he or she see they will be paying $400 in balance transfer fees.  This may lead these consumers to overlook the fact that they will save about $1000 in interest by transferring their balance to a 0% credit card.

The Temporary Silver Lining

Impending increases in balance transfer fees signal, at least temporarily, that 0% balance transfers will not be pulled from the market altogether.  This is very good news, though the elimination and/or shortening of 0% introductory deals is definitely still a looming possibility.  In the early 2000’s, a standard balance transfer deal provided a 2.9% rate for 6 months to 1 year and included 3% fees.  Increasing competition for credit card customers drove these rates, along with the associated fees, down to zero when credit was flowing freely.

Unfortunately, this blog has been nervously anticipating the disappearance of 0% balance transfers for the past 6 months.  Fortunately, this has not come to fruition.  Nevertheless, anything and everything is possible these days, and securing a 0% APR should not be taken for granted.  Not only will fees be increasing, but it is entirely possible that interest rates will rise and introductory periods will decreases.

What Should You Do

If you’re sitting on a pile of high interest credit card debt, you should actively seek out a 0% balance transfer as soon as possible.  With fee increases on the immediate horizon, transferring balances today will save you an extra 1%.  More importantly, however, the potential for shorter introductory periods or increased teaser rates is still a massive threat.  With all these factors conspiring against consumers, it is more important than ever to lock in a 0% rate for a year.  Doing so will not only decrease your interest expense this year, but, more importantly, it will shorten the time it takes to get out of credit card debt substantially.

To learn more about current balance transfer offers and apply online for approval, please see the 0% balance transfer section of this website where you can compare current offers and apply online for approval.

To learn how much a balance transfer can save you, please see our balance transfer calculator.

According to the Journal, Bank of America is raising rates on consumers with interest rates of less than 10% or forcing them to close their accounts.  The degree of increases varies, but can be quite substantial.  A visitor of this website, posting as Pissed at BOA, told us that Bank of America raised his rate from a fixed 7.9% rate to an astronomical 23.65%.  When he contacted Bank of America, he was told the reason behind his rate increase was, “not a reflect(ion) of you or your credit history with us or others and it is due to the current economic conditions.”

The latest round of interest rate increases from Bank of America should give everyone with credit card debt, not just Bank of America cardholders, reason for concern.  However, as I’ve told many rate increase victims, having a surprise rate increase can work to your advantage, as long as the proper steps are taken. 

What you should do when your interest rate is increased

1.)  Transfer your balance to a 0% credit card:  Many people with double digit interest rates never even consider balance transfers.  However, 0% balance transfers can work miracles for consumers by saving them hundreds of dollars in yearly interest.  This provides an opportunity to reduce debt substantially without compounding interest expenses.  On the average, a person with a 14% interest rate can save over $100 a year for every $1,000 transferred to a 0% credit card.  For a person with $5,000 in debt, that can translate into over $500 in interest savings during one year.  If you aren’t using balance transfer credit cards to pay down credit card debt, you should be. 

Click here to review balance transfer offers on this site and apply online

2.)  If you can get approved for a 0% balance transfer, keep your old credit card account open:  Closing credit card accounts can have huge, adverse affects on your credit score for a variety of reasons.  First, closing a credit card account without opening a new one reduces your available credit.  This, in turn, increases your credit utilization ratio.  Credit utilization ratio’s account for 30% of your credit score.  Thus, if you had $2,000 in debt and $5,000 in total available credit, your utilization rate would be 40%.  However, if your available credit is cut to $3000, you’re now using close to 70% of your available credit.  This can lower a person’s credit score by dozens of points, thrusting people with good or excellent credit into the average credit category.

A second credit score problem caused by closing accounts is the shortening of your credit history.  If, for example, the credit card you close had been open for years, closing it will reduce your active credit history, another issue that can lower your credit score.

Click here to view free credit score analysis tools

3.)  Pay down as much credit card debt as possible:  While easier said than done, paying down credit card debt is truly the only way to protect yourself against predatory credit card lenders.  While today’s spotlight is on the Bank of America interest rate increases, just about every major credit card issuer has been raising interest rates lately.  Visitors have been posting about sudden rate changes from Chase, Capital One, HSBC, and American Express for months now on this blog (see credit card complaints here).  Call me pessimistic, but I think the worst has yet to come.  As consumers, the best defense is to limit your exposure to the whims of our banks.  And the only way to do that is to lower your credit card debt. 

Final Thoughts

Having your interest rate increased can be a nightmare, but it can also put you on the path to getting out of credit card debt if proper actions are taken.  If Bank of America raised your interest rate, turn your anger into action.  Do a 0% balance transfer and start paying your debt down immediately.  Don’t be a passive victim; be a smart consumer.  And, as our website implies, do a smart balance transfer.

To kick start the process of getting out debt, visit the balance transfer credit card section of this website where you can compare current 0% balance transfer offers and apply online.

If you’ve been the victim of a Bank of America interest rate increase (or any bank’s rate increase), please share your experience by leaving a comment.  Your postings are anonymous and help us keep the public informed.