Credit Cards: New Annual Fees for Customers Who Can’t Close Their Accounts

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A small portion of Bank of America credit card customers will soon be hit with all-new $59 annual fees. Who, exactly, will be assessed the fees? For the most part, it’s the customers who will find it the most difficult to walk away from their accounts.

An AP story from about a month ago first reported Bank of America’s plans for new $59 annual fees to be added to about 5% of its customers accounts. The fee isn’t tied to any particular kind of BofA card, but instead to the individual customer’s “risk profile.” Those who make frequent late payments, who carry super high balances that they’re unlikely to ever pay off, and/or who typically wouldn’t be approved of for a no-fee card today are more likely to get the $59 fee added on top.

Today’s David Lazarus column in the LA Times features a woman named Sue Laman, who just so happens to be facing a new $59 fee for her Bank of America credit card—and who, after a bad run of medical bills and unfortunate recession-related family expenditures, has about $30K in credit card debt. The only way to avoid the new fee is to close the account. To do that Laman would have to settle her debt—and she says that it’s impossible to pay off her card anytime soon. So she’s stuck. In her own words from Lazarus’s column:

“I feel like an indentured servant,” Laman told me. “But what can I do? I can’t refuse their annual fee. They know I have no choice except to pay.”

Since credit card reform was first proposed, consumers have gotten accustomed to the idea that in exchange for better disclosure and fewer gotcha penalties associated with reform, there were some unfortunate tradeoffs—namely more fees and higher interest rates. In more recent months, however, after the initial months of soaring rate increases had passed, things seem to have settled down. There was even news that a select few credit card fees had disappeared, shockingly.

So why the new fee from BofA? I’m sure the executive response to this adds up to: Um, why the hell not?

The CARD Act—which you can learn about in this handy, dumbed-down infographic from BillShrink—forbids card issuers from rate increases unless the customer has gone at least 60 days without making at least the minimum payment. But there are no rules that specifically outlaw adding new annual fees, even for customers like Laman who have never missed payments.

So the fees are simply a means for BofA to milk a little more money out of customers who don’t have the money to pay what they already owe. If these customers are peeved enough by the new fee that they manage to pay off their debt and close the account, BofA wins in that scenario as well—because the debt’s been paid off.

Now, if Bank of America really deemed all of these customers unworthy of credit to the extent that it must add a $59 fee to hedge for the added risk, why doesn’t the bank simply close these accounts? That’s what happened to millions of accounts in the immediate aftermath of the CARD Act. Because of the high balances, and the absence of other feasible options, the customers themselves may feel unable to close these accounts. But BofA could easily close them, if it wanted to. Lazarus sees the wisdom in this approach, writing:

People in Laman’s position may not like it, but if the bank truly believes they’re no longer creditworthy, cut them off.

I have to agree. Customers should view this fee is as a simple money grab by the bank, or a push to close the account. Either way, the bank wins. And either way, it’s clear that this is not a healthy relationship, and it should probably end.

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