The issue of credit card fees never seems to go away.    Recently, the passage of the Credit Card Bill of Rights has brought them again to the forefront.    It is popular to write articles claiming that this new law has been causing banks to increase fees.    I would like to take a more critical look at this analysis.

Are There Really More New Fees?

The USA Today seems to think so.   Today they printed this article;  “Credit card issuers pile on new fees”. In it, the author Kathy Chu cites several example of some new fees.   Exhibit one: “In June, Fifth Third Bank began charging a $19 fee if credit card borrowers have no account activity in 12 months.”     Ok, first, I spend hours a day reading and writing about credit cards, and yet, I have never heard of “Fifth Third Bank”.    According to Wikipedia, they have been around for 150 years and have branches in 12 states.     Still, they are not exactly as big a card issuer as Capitol One or US Bank.     Second, $19 for no account activity for a year hardly seems like a big deal.    It wouldn’t surprise me if anyone every pays this.   99% of the people who receive a statement with this fee  probably just forgot they even had the credit card, and canceled it the next day.   The other 1% are likely deceased.

Exhibit 2 is that Citigroup “has rolled out a policy where certain credit card borrowers who pay late are subject to a “reinstatement fee” to be able to redeem accumulated points for rewards.  This fee is currently $0. But it won’t stay that way, predicts Robert Hammer, who consults with the industry, if Citigroup finds cardholders aren’t objecting to the policy. Citigroup spokesman Samuel Wang says, “We currently have no plans to raise it.”    Call me crazy, but a $0 fee isn’t a fee, even if an industry analyst predicts, despite Citi’s denial, that it will one day be greater than zero.

The USA Today article also mentions that “Discover now levies a 2% fee on purchases made outside the U.S., and Chase has introduced a $30 annual fee on its popular Freedom credit card for certain cardholders.”    This is not shocking either.   I don’t how long Discover had a foreign transaction fee, and frankly, I am surprised that Discover is even accepted overseas.    As much as I hate these fees, they are common to most, but not all, credit cards.      The annual fee for the Chase “Freedom” card is pretty anecdotal evidence as well, especially as it only pertains to “certain customers”.    I imagine those customers are the ones who actually pay it rather than switch to one of the many competing, fee free cards.

The author then proceeds to recite the industry sponsored boiler plate about how new fees are a necessary reaction to the new legislation.

So What?

Let’s face it, the USA Today is not exactly the home of the most pavement pounding muckrakers in the journalism world, so such an article will not shock the millions of business travelers who found this paper underneath the door to their room at the Courtyard Marriott.

That cannot be said of the prestigious New Republic magazine.   Today, their online blog, The Plank featured a post on “Credit Conditions In The Absence Of Consumer Protection.” In it, they ask if “retail credit conditions, i.e., the terms on which you can borrow, getting easier or tougher?   On credit cards, there’s no question: it’s getting more expensive to borrow, particularly because new fees and charge are appearing.”    To support this conclusion, they offer a link to none other than the aforementioned USA Today article.

I like the New Republic, and I read their blogs daily, but citing this shoddy USA Today article is really beneath them.     As far as I can see, there has not been any across the board increase in credit card fees.   Yes, some have gone up, but some have gone down.     For example, the Consumerist writes that Amex and Discover have dropped their “over the limit” fees, rather than make them ‘opt-in’ as the law will require.    I could easily write an article showing just as many other fees that have been eliminated or have gone down.     More importantly, I can probably show many new card offerings with no annual fees and cards with annual fees that are no longer being offered due to their unpopularity in a highly competitive marketplace.

So did the New Republic Get It Wrong?

Ironically, I do agree with the conclusions of the New Republic article.    I think there should be greater regulatory oversight of the credit card industry.     I am glad that a rare combination of circumstances allowed the Credit Card Bill of Rights to pass.     This kind of regulatory action should occur whenever banks abuse customers.   We should not have to wait for another president to take office at a time when banks are getting billion dollar bailouts and the president has super-majorities in both the House and the Senate.    The stars were aligned in the interests of consumers this year, but there is little or no evidence that this legislation is having an negative effect on credit card fees and penalties.

I will admit that APRs are a different story, one that I hope to address in a future post.

This entry was posted on Monday, August 10th, 2009 at 20:00 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.