Mike the Mad Biologist

Because people who pay what they owe on time hate America. Or something. Several banks–notably the ones whose asses we bailed out–plan on charging fees to cardholders who either pay off their balances on time or who don’t use them very often:

You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case.

Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected.

Citigroup, meanwhile, has started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don’t use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt….

Curtis Arnold, founder of CardRatings.com, says he expected credit card issuers to raise annual fees after the legislation was enacted. What he didn’t expect, he says, “was that good customers were going to be hit.”

In the distant, protean past, banks actually made profits, and they typically didn’t engage in usury to do it. Banks charge merchants fees too. This isn’t capitalism, but wealth extraction. It makes me very sympathetic to the idea that the government should get into the credit card business.

A while ago, I opened a small account at a credit union. I’m tempted to move all of my money there. Why should the mamzers at the big banks get my money?

MSNBC’s Dylan Ratigan has similar thoughts:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Comments

#1 Katharine
October 26, 2009

There are about five groups of people I hate:

1) Businesspeople
2) Journalists
3) Advertisers
4) Clergypeople
5) Politicians

Why? They’re all bullshit artists.
#2 Not that Louis
October 26, 2009

To quote MacHeath from the Threepenny Opera, “What is the robbing of a bank compared to the founding of a bank?”
#3 Russell
October 26, 2009

The marketing droids who dreamed up those charges will soon discover the banks won’t be able to collect them. Convenience users dump a card as soon as the issuing bank tries something like that.
#4 D. C. Sessions
October 26, 2009

This isn’t capitalism, but wealth extraction.

The technical term is “rents.”
#5 JohnV
October 26, 2009

I can only assume that I’ll be among the bank of america users hit with one of these fees. I imagine that the phone call to them to cancel will be entertaining.
#6 Eric Lund
October 26, 2009

Do these banks *want* to fail? Driving away your non-deadbeat customers is a surefire way to do it, and this move could hardly be better designed to drive those customers away. BoA and Citi may think they are “too big to fail”, but they actually aren’t–they’ll just make a bigger mess when they do.
#7 D. C. Sessions
October 26, 2009

BoA and Citi may think they are “too big to fail”

BoA and Citi don’t think. Their managements do, however, and they know that they get paid for the upside with the taxpayer (or stockholders, or whoever) taking the losses.

Under the circumstances, the rational policy is to milk it hard while you can.
#8 JasonTD
October 26, 2009

If I remember correctly, there was a time when it was pretty standard practice for credit cards to come with an annual fee. It was in the last 10-20 years when competition for customers heated up that they started dropping them.

When you think about it, someone that pays off their bill completely every month and doesn’t carry a balance isn’t making the card issuer any money. So, that customer is getting a service (not having to pay cash) for free. Also, having a credit line that you never use is likewise not something a lender would want to have on its books. The lender has to be able to pay for any charges you might decide to make.

Remember that someone had to spend the money to build the infrastructure that allows us to swipe a card to pay for something.
#9 chrisj
October 26, 2009

JasonTD: wrong, actually. Even if you pay off your card every month, the bank is still making money – they’re charging the merchant a percentage of the transaction (and usually a flat fee as well).
#10 Troublesome Frog
October 26, 2009

When you think about it, someone that pays off their bill completely every month and doesn’t carry a balance isn’t making the card issuer any money.

That’s actually not true. The credit card issuer typically pays the merchant slightly less than the face value of the debt (or charges a transaction fee).

I’m sure that the agreements between merchants and card issuers have become as byzantine as those between lenders and borrowers, but the bottom line is that even if you pay your balance off like clockwork, the bank is still geting a piece of every penny you spend with their card. You may not be a source of incredibly high profits, but a small army of customers like you is a reliable stream of consistent revenue.

I would think that the type of customer who reliably never caries a balance is also the type of customer who would drop you like a hot potato as soon as you try dinging them with fees. What banks need to do is somehow combine their “random fee for everything” model with the cell phone industry’s “You signed a contract, so bend over and take it. You have no rights!” model. That’s where the real money is at.
#11 Anthony
October 26, 2009

Managing credit cards costs banks money. They can make credit cards profitable by either applying high rates (which means all the load lies on the people who don’t pay on time), or by adding annual fees (which means the load goes to everyone), or by a mix. BofA chose to add fees instead of increasing interest rates.

Honestly, annual fees are a fairer way to charge for a credit card. Yes, it may be less tempting if you’re one of the people who always pay on time, but it’s also less destructive for the people who are having trouble.
#12 Jason
October 26, 2009

I am now a former BoA customer. I have had a BoA card for 20 years, and it was my only card so they made decent money off of me from merchant fees until they just decided to send me an annual fee. I think their plan will be unsuccessful for this reason- the people being targeted for the new fees are those who are stable enough and financially responsible enough to pay off their balance each month. These are the same people who will not hesitate to tear up the card rather than pay an annual fee as long as there are free cards available. If the rest of the industry follows suit, then we’ll see but for now BoA is going to hemorrhage customers.
#13 Scott
October 26, 2009

Dumping a long-held card can decrease your credit rating, letting them charge you more on the others you keep. Longer credit histories are generally better than shorted ones, and you instantly increase your debt-to-credit ratio by giving up the unused credit on that card.

You still can’t quite win…
#14 Elaine
October 26, 2009

Citibank recently raised my interest rate from about 8% to 29.99% I’m one of those people who pays on time and never keeps a balance. I had the card since the 1980′s. I think they were trying to get rid of me. They did.
#15 Katherine
October 26, 2009

Wow. You can’t get a credit card over here without paying an annual fee. Though it’s only $24 NZ a year, and the money I make in rewards points more than pays for it.
#16 The Ridger
October 26, 2009

Sweet. Citi just got the government travel card (from BOA as it happens). Lots of government folks won’t use it enough to escape the fee…
#17 debtsettlementleads
October 27, 2009

big banks really squeeze juices out of people. they are really mean and cold..
#18 Jason
October 27, 2009

“Dumping a long-held card can decrease your credit rating, letting them charge you more on the others you keep…

You still can’t quite win…”

Don’t carry a balance. Don’t dump the card within a few months of a major vehicle or home purchase. Win.
#19 muhtar
February 9, 2010

Do these banks *want* to fail? Driving away your non-deadbeat customers is a surefire way to do it, and this move could hardly be better designed to drive those customers away. BoA and Citi may think they are “too big to fail”, but they actually aren’t–they’ll just make a bigger mess when they do.