Banks have generally responded to credit card reforms instituted over the last two years by trying to milk customers with more fees and higher interest rates. But now, while interest rates remain high (averaging nearly 15%), some banks are dropping certain fees, including penalty-interest rates and foreign transaction fees. Now why might credit-card issuers eliminate these sources of revenue?
Simply put, they’re bad for business. The fees that are disappearing tend to have two things in common: They don’t earn the card issuers all that much money (relatively speaking), and they annoy the hell out of customers. Often, they annoy customers so much that the accounts wind up closed—and that card issuers don’t get to collect any more measly fees, late penalties, interest rate payments, or payments of any kind.
The WSJ highlights the fact that, for example, American Express and Citibank are getting rid of foreign transaction fees on some of their cards. These fees usually add may 2% or 3% when a customer makes a purchase overseas. Does it cost the card issuers anywhere near this much to perform a currency transaction? Of course not. Charging these fees is a quick and easy money grab—one that consumers are increasingly aware of. Consumers are also increasingly aware that there are other non-rip-off options; many Capital One cards have never charged foreign transaction fees.
Bank of America also decided to waive certain fees. Specifically, customers will no longer get hit with a late fee if an account balance is $100 or less. And why would BofA act so beneficently? From the WSJ story:
“The motivation behind these moves is to improve the persistent perception that card issuers are simply price-gouging,” says Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods.
In other words, this is a basic PR play. But hey, sometimes a PR move works wonderfully to the benefit of consumers. The banks are taking a new look at these fees, and they’re realizing that the potential downside (losing customers) outweighs their upside (collecting occasional $35 charges here and there). All businesses know it is far more difficult (and expensive) to find new customers than it is to keep the ones you have, and this is especially the case lately with the credit card world. Signing up a new credit card customer, which cost around $100 before the recession, is estimated $150 per account now, and is expected to rise to $200 a pop in the near future. So, for obvious reasons, the banks don’t want to annoy their customers and give them good reason to take their business elsewhere.
What the card issuers want way more than some fees is customer loyalty:
American Express says it nixed foreign transaction fees on certain cards to build loyalty among their cardholders, many of whom are frequent business travelers. “We want to offer the best card for the affluent traveler,” says Desiree Fish, a company spokeswoman.
Regardless of their motivations, the card issuers are clearly responding to the marketplace, and to their customers. It may have taken longer than many consumers would have liked, and it’s only the tip of the fee iceberg.
But somehow several big banks have decided to take a tiny step toward fairness. Obviously, the banks only made these moves because it was in their best interest. But perhaps the banks and card issuers are finally starting to get the message that, guess what? We don’t like being gouged. We don’t like being nickel and dimed. We don’t like getting hit with nonsensical fees. And if banks continue charging them, we’re smart enough to avoid them, if need be by taking our business elsewhere.
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