Credit Cards Strike Back with New and Deceptive Fees

Last Spring, Congress passed a credit card reform bill that eliminates some of the hidden fees in credit card use. A new study by the Center for Responsible Lending finds that the credit cards companies are striking back by raising rates  and fees that are not covered by the legislation. That doesn't surprise me. We all knew that the credit card companies were going to get their revenge in some way. After all, they have Wall Street to keep happy and it would have been out-of-character for them to roll-over and accept the new requirements.

Is what they're doing fair? Utlimately, many would say that if you use a credit card and take on debt, the issuer of that debt can do whatever they want. If you don't like it, don't take on the debt. But that has new meaning today when the general public has given the banks and credit card companies loans to stay in business. To be gouged by the very people that were saved by our taxpayer generosity seems wrong.

So, what are some of the ways credit cards are striking back?

Pick-a-rate: Credit card companies have changed the way they calculate variable rates on cards. Instead of choosing a rate on the last day of the card's billing cycle, they can now choose the highest rate over the previous 90 days. An analysis by the Center for Repsonsible Lending shows that this will increase average credit card rates by .3 percentage points.

Penalty Fees: The Center for Responsible Lending reports that credit card companies have changed their late-free structure so that almost everyone pays the highest late fee possible. Before, the late fee was based on your balance. Now, 87% of card holders will pay the same fee - the highest one.

Miscellaneous Fees: Credit card companies have been adding new, hidden fees since the new act passed. These include:

  • Additional inactivity fees.
  • Heavier fees on international transactions
  • Raising consumer costs by changing cash advance/balance transfer floors, ceilings, and
    related charges.

""The Credit CARD Act that Congress passed earlier this year was a big improvement for American families. But our research shows that industry keeps finding clever ways to get around meaningful reform, and we need a regulator focused on making financial products fair," said CRL researcher, Josh Frank, the report's author.

Still, one has to wonder what the public and policy makers expected. Lenders are going to make a profit or they are going to stop lending. I'd love to see the credit card models which show just how much profit the cards generate per person. If there is plenty of profit in these calculations then the banks will have to accept lower margins going forward. If not, then borrowers are going to have to accept higher fees, higher rates, or no loans at all.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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