For those who have feared that the CARD Act will lead to fee increases, this is a perfect example. About 5% of BofA credit card customers will be charged a new $59 annual fee soon, on top of what they’re already paying.
The fee isn’t limited to a specific card, and isn’t technically a penalty, but instead is based on the customer’s risk profile. The lucky “winners” are users with lower FICO scores, people who regularly make late payments, or those who don’t have any other relationship with the bank, like a mortgage or checking account, according to a Bank of America spokesperson.
This high-risk pool has an average interest rate of 14%, and according to the bank would not receive a no annual fee credit card account with the same interest rate if they were to apply today. So essentially, the CARD Act prevents banks from raising interest rates on existing balances, or raising interest rates within the first year of opening an account, so they’re just replacing higher rates with higher fees.
The CARD Act also dictates that card companies can’t impose new fees without giving customers 45 days of advance notice, so cardholders have plenty of time to find a new card.
It’s a little strange to slap another fee on customers with a low credit score, who might already be close to default. But this could also be a tactic to get rid of lower credit, higher risk customers. If a large portion of these cardholders decide not to pay, and instead to move their balances to other banks’ cards, Bank of America will be left with a much better loan portfolio.
All the major card issuers have been arguing for the past year or so that more regulation would lead to higher fees and tighter credit, and now they’re bringing their predictions to light. A recent study by the Center for Responsible Lending says this hasn’t happened yet, but it clearly has.
Keep an eye out for arbitrary fees like this one in the future, as well as new ways of cutting off credit to higher risk customers.