Cook Wealth Management Group

Credit Card Fees – The Ups and Downs

As of August 2010, credit card companies must comply with the Credit Card Accountability Responsibility and Disclosure Act of 2009. Card companies must encourage timely payment by making fees more obvious. But be aware – they’ll also be looking for new ways to create revenue.

What changes can you expect?

  • Notification of interest rate increases (on future purchases) at least 45 days in advance (As long as monthly payments are received on time, an interest increase cannot be applied to an existing balance.)
  • Disclosure on monthly statement of how long it would take to pay off the card if only the minimum payment is paid each month
  • Limited penalty fees (maximum of $25 for most penalties – repeated violations like missing two payments within six months means fees could be higher.)

According to The Wall Street Journal, as of 2009, the average American owed $5,400 in credit card debt. But now that mail-offer credit cards are on the decline, so are new customers.

What can creditors still do to make money?

  • Raise interest rates and annual fees (with 45 days notice)
  • Convert fixed-rate cards to variable-rate cards (again, with notice)
  • Charge extra for paper statements or warranties on purchases
  • Raise foreign transaction fees (Bank of America now charges 3% on foreign transactions even if the purchase is made in U.S. currency.)
  • Cut back on rewards and cash-back programs (Today’s 1% standard is much less than the 3-5% offerings of recent years; American Express now deletes customers’ rewards points if they pay late. They will reinstate the points for $29.)

Also newly required is a review of customer interest rates every six months. Cardholders must be given the option to close the account and pay off the card under the previous terms if they do not agree to the new terms. So, if you receive notice that your rate will soar 10%, you do have the opportunity to refuse. And don’t fret too much about your credit score. Although cancelling a card hurts your score, keeping an inactive card is slightly worse. Maintain a balance from month to month on at least one card, and typically your credit score won’t suffer much.

Be on the lookout for changes of terms in your card agreements and check with your advisor before accepting new terms. In the meantime, keep swiping responsibly.

For informational purposes only. Not intended as a substitute for professional advice.
Based on content derived from “Fed limits card fees to $25” by Jennifer Liberto. June 15, 2010. and “Credit-Card Fees: the New Traps,” by Robin Sidel. February 20, 2010.