Credit Card Fees For Good Behavior

In what could ultimately be a game-changer in the credit card industry, it appears credit card companies are considering charging customers a new sort of annual fee – for paying off your balance each month. The information is coming slow, but I did find a good article by USA Today, Latest Bank Fee is for Paying Off Credit Card On Time Every Month, that runs down a few of the cards and their new tactics.

Credit card companies, and their defenders, will of course point to the new Credit CARD Act, which will limit revenue opportunities for credit card companies. However, in my mind, this is yet another customer-losing reaction to the impending legislation. You can blame the law of unintended consequences and thank the government, or you can blame the credit card issuers and close your accounts.

In the past, any time I’ve mentioned closing all my credit cards and living on cash, I get dozens of comments extolling the benefits of using a credit card. There are reward programs, and added consumer protection policies, and of course the convenience factor. To sell their position, fans of credit cards always pointed out that you could simply pay off the balance every month to avoid interest and fees. What if that isn’t true in the very near future? Does that change their opinion? Does it change yours?

Just when I start to get comfortable using my one remaining credit card (I use it to run through gas and utility payments and pay it off at the end of the month), news like this comes out and makes me skeptical of credit card companies all over again.

At what point do we just make ourselves immune to the whims of bank CEOs and government officials and say to heck with credit cards? Just shred ‘em! Well, I am getting pretty close to that point. If the issuer of my last card decides to play these fee games I’ll take a pair of sharp shears to it and live on cash. Come to think of it, I doubt I’d miss them.

Comments

  1. This is a game changer for sure. I carry only 2 cards. I have one for business and one for personal. The personal card would be gone tomorrow if I receive notification of this. The business card is used for extensive travel… the question… would the company and clients reimburse for these fees? If not, I would look to a tax write off for the fees.

  2. “”"
    fans of credit cards always pointed out that you could simply pay off the balance every month to avoid interest and fees. What if that isn’t true in the very near future? Does that change their opinion? Does it change yours?
    “”"

    Absolutely. We’re one of those fans that pays the balance in full each month, enjoying our Citibank Mastercard’s 1-2% cash-back reward on gas/groceries. But an announcement of such this charge/fee would cause us to immediately call the company to complain, cancelling the card if they refused to perpetually revoke any and all such fees. There are plenty of other credit-card companies soliciting our business to whom we’d readily jump ship.

    Though I’m curious if there’s a loophole for short-paying the full amount by $0.01 each month. Even 30% interest on $0.01 over the course of the month is pretty immaterial.

    -gumnos

  3. Wow…

    I am a huge fan of rewards credit cards – I have three, and not one has an annual fee. I also pay off the balance in full each month.

    If any of my credit cards changed the terms so that I was paying fees for no reason, *especially* if it was specifically because I pay them in full each month, I would cancel them in a heartbeat — even if it was all three companies, and to hell with how it would affect my credit score.

  4. I plan to keep about $100 on my two cards. The interest on that amount is less than the annual fees proposed for the “pay it off every month” crowd.

    I’ll predict right here that a few issuers will buck this trend anyway and keep their terms more consumer friendly to get more business.

  5. Wow, you’d think that punishing responsible card holders would make the government even scrutinize the financial industry even more closely.

    I use credit cards for the reward programs, but if the incentive is no longer there, then I’m going to close those cards that charge me a “responsible borrower” fee. Most likely, I’ll get new cards with smaller but intelligent card companies.

    There should be some smaller credit card players that would be glad to increase there customer base. Especially the brokerage companies, perhaps like Charles Schwab, Etrade, Ameritrade or regional banks…

    -D

  6. @Ron: Agreed. I suspect most issuers will receive such backlash from the negative publicity alone that they will ultimately back off these fees. Then again, we’re living in a new regulatory world, which predicting these kind of reactions less difficult.

  7. I don’t think my credit union (or any credit union, for that matter) will be doing this, but if they do I’ll just pay off everything but 1 cent. Let them charge all the interest they want on 1 cent. At most, I’ll pay $0.12 per year in extra charges.
    There’s more than one way to skin a cat.

  8. @Gumnos @Ron – Because of the two-month interest billing cycle that most credit companies apply, leaving $0.01 on your card may trigger interest on the entire balance. I’m not certain of how it works exactly, but another blogger explained it to me once. More research might be warranted and of course, you can always try it and see what happens…

    As to the post, I am squarely in the pro-credit card camp and love my rewards, but if this goes through, I am done & out faster than I can blink. The power of credit card companies is that they can change the terms of their cards, and the power of the consumer is that they can say “no.”

  9. Closing down all these cards that I have had for 20 yrs certainly would affect my fico score. I plan on keeping the cards around long encough to refinance my house. The CC companies are misbehaving so much since our politicians implemented these changes, that my question is- did Congress really do us any favors? They made these changes to go into effect in Feb, plenty of time to misbehave. Not too bright on theri part. Thanks for nothing

  10. Yeah, I think Wojciech #8 is right – if you have one month with anything carrying over, even 1-cent, then everything gets hit with finance charges the next month until you have one or two months where the entire amount’s paid off again. What a PITA. I suppose you could start using one card for 10 months of the year, leave 1-cent to carry over, then pay it off and put that card away for a month or two. Ugh.

    I would be with the others who call and complain, and if the cc company won’t waive the fee, then we’ll cancel. I do think that even if this starts popping up throughout the industry, there will be some card(s) out there that won’t charge a fee for this and will use that as their competitive lure, and that’s probably the card we’ll switch to. While I would hate to lose out on the rewards we get now from the 2 cards we have, we’ll switch if necessary – convenience being the other major reason for keeping an active card.

  11. The only reason I still have credit cards is the convenience of not having to carry cash. If the scum sucking gutter rats called the credit card industry decide to impose this kind of fee on me, I would cancel the card in a heartbeat.

  12. I’ll be quite disappointed if this happens as well – although it will be interesting to see whether these actions will be limited to U.S. cards. Canadian issuers will have their own rules and so far have not proven as scammy or deceptive as my current U.S. Citibank card, which doesn’t even list what I pay in interest, for example. Making it deliberately more difficult for the consumer to understand their bill.

  13. Can’t say I’m a fan of this idea. I think we’ll see a lot of ticked off customers and a lot of credit card account being closed. I won’t pay an annual fee on a credit card, so I would either close the account or charge something, make a minimum payment then pay it off (of course I’ll have to read up on their requirements to avoid the fee before I choose the latter route).

  14. Something I didn’t mention in the post, but is referenced in the USA Today article, is a few issuers plan to impose minimum spending thresholds that must be met to avoid the fee ($2,400 per year, in one case).

    I REALLY don’t like that because it requires us to spend $200 a month on credit cards just to avoid the fee. That has a way of forcing my spending behavior, and I don’t like anyone else dictating how I should spend MY money. It will be interesting to see how all this plays out.

  15. Well my take on this is, if the bank is charging you to pay them, find a new bank, Banks, Chase my money or fill in yours, if the Credit Card companies are, Discover how we get more of your money, do this then it’s time to go cash only.
    Gen Y invester, the Credit Card companies are the ones that charge merchants 3-4% not the banks, the banks charge you fees and interest.
    I use a debit card so if my bank charges my to be a customer I leave, if all banks charged me, I would not have any, then I get charged to cash my pay check,

  16. I am one of those that uses my credit card each month and pays off the balance in full the next month. I do it for the rewards (2% cash back) but if they start charging me for being responsible (paying off my balance) or setting minimum spending limits, I will have to say bye, bye.

    Why do the responsible one’s always get the shaft??

    - SingleGuyMoney

  17. I think it would depend on the fee, really. I usually get somewhere in the area of $600 cash back on an Amex Blue card each year, so if I was charged $4.99 each month for paying off the balance in full, I might decide it was worth it.

    But I’d certainly shop around for a different rewards card, and if the rewards didn’t justify the fees I’d switch to cash without hesitation.

  18. Yup, that would change it for me! I DON’T pay a fee to have their credit card. They make money every transaction I make, that is enough money to make off someone who pays it off. If it wasn’t for people like us the system wouldn’t be making nearly as much money and have a lot more outstanding money. I help their bottom line plain and simple even if I’m not paying 19% interest

    Interesting notes in the article about the credit rating. I’m from Canada and the credit card I have is Canadian. There doesn’t seem to be the same obsession in Canada about the credit scores and how closing a credit card would be bad. It seems to be the history of your accounts and payments that actually matters.

  19. FD, I have ONE credit card which is paid off every month. If the bank starts charging me a fee and I close the account, it will look like I do not have any credit history. I am also looking into getting B&N credit card because I love to read.

  20. This would be a game changer for me. A fee for being financially responsible? How contradictory can you be?!?! The big question for me would be how to extricate oneself from credit card use without trashing the credit report.

  21. I have a book coming out called the cat who ate chase bank.

    However, even though I can’t stand Chase Bank in particular because of their raising of the monthly minimum payment on a million of their customers who had a low interest rate life of loan offer, I am surprised at the anger I am reading in the comment section without even knowing what the amount of the yearly charge, would be.

    If I was an enterprising marketing person, I would offer a cool sale where I would pay a customers annual fee for one year if they spent a hundred bucks in my store. Problem solved. This could actually be a good thing for the innovative marketing people out there looking for the next lure.

  22. I only carry 2 – but I have several stuck in the drawer which would be immediately cancelled. I am thinking that my investment company’s card may not play that game – and if so, I would only carry that card for emergencies.

    I’m not worried at this stage of my life about my credit score – everything is paid for and should last til I die – or pay cash for another vehicle.

    I do like having a card for online airline tickets – and that’s the only part that would be a problem for me – altho my local travel agent would take a check, I am sure.

  23. This news is not pleasing to me. Credit cards offer so many benefits…not having to carry cash, free loans (during your grace period), one simple and easy bill to pay each month, an easy way to track your spending, cash back rebates, a boost to your credit score (with responsible use), emergency funds, and an easy way to purchase things online. However, I make the credit card companies money by simply using the card because the merchants charge the credit card company a fee when I use the card.

    These are all nice, but if I have to pay to use the card, I’m done. I use credit cards because they benefit me (primarily the rebate) – but if they yank that rebate away and replace with with a fee, I will go back to using cash only.

  24. Just got a notice that my card is raising the new rate Nov 30 to ).99!! Obviously, I have decided to cancel that card and opt out. Just hate to see my favorite rewards card gone.

  25. There is a card now out that encourages fiscal responsibility. The Nothing Card. Looks and feels just like a real credit card but without the fees, penalties and monthly bills. Go to http://www.NothingCard.com and see for yourself. Stick it in your wallet and stick it to the banks.

  26. I fired two credit card companies (Citi and Chase) over the span of a year, and moved my plastic to my credit union. They give a cash rebate and wouldn’t dream of gouging with a “good behavior” fee.

  27. I would definitely rethink my credit cards if they charged me a fee for being a responsible customer. This doesn’t seem to be a well-thought out plan on the part of the credit card companies. While they may not make money off those of us who pay our balances off on time and in full, where are they going to get the money to carry those who don’t if we all walk?

  28. Problem with cancelling all cards is that the hit on credit rating could be massive. And unfortunately, our system has credit ratings affecting insurance rates, loan rates, mortgage rates, and even the ability to get hired! The money lost on keeping the card and paying their stupid fees would be more than made up on the savings in these other areas. Not saying I’m happy about it. I’m hoping that consumer outrage will convince them not to do this across the board. I’m sticking with my credit union as much as possible.

  29. This plan is idiotic. Credit cards get paid a commission for every transaction by the store you make purchases from.

    If they would like to double dip, they’ll have to do it elsewhere. I will happily pay for things with cash instead.

  30. Having lived without credit cards for almost a decade, I assure you it’s EASY. I carry a no-fee bank debit card for emergencies, purchases that can’t be made by cash or check, and anything more conveniently bought with a card (like gasoline at the pump). I ordered great Lady Gaga concert tickets the other day and frequently shop online without hassles. The only thing I might “miss” about credit cards are the reward programs, but most of them get cancelled out by interest charges or the temptation to overbuy.

    Trust me, it’s smarter to cut up credit cards and search for bargains and discounts online than to earn less than 10% cash back or discounts on specific purchases. Most credit card companies are so corrupt, opportunistic and unfair that I can’t imagine dealing with them. They’ve made their gold and platinum cards seem desirable by clever marketing, but cash is still king. Once in awhile I can negotiate a price reduction for paying with cash because it saves the merchant from ever-rising credit card company fees.

  31. FD – Great post and even better reactions. The trouble with any argument in-favor of credit cards is that they exist in a grace period. At some point, the terms of the agreement will change, with little notice. It’s what they do and they have every right to do it. There will always be ‘the next thing’ – CARD Act or No CARD Act. They can and will constantly change the rules of the game, thus changing the argument. It’s a financial moving target.

  32. I have a lot of trouble sending money to Amazon when I put it in my DVD drive ;-) . What I’m saying here, is that cash doesn’t work for all transactions.

    A debit card might be a good compromise, but what if those get charged fees too? Do you just stop shopping at online merchants because you only deal with paper money?

    That doesn’t sound like progress.

  33. Lazy-

    Why would they add fees to debit cards when they are not the subject of the legislation driving the fees on credit cards?

    The fact is that they are not the ones adding fees, and for the most part, that’s about all we sue our debit cards for – on-line payments. It’s an electronic form of cash.

    Even if both credit and debit emerge out of this with enough fees to discourage on-line shopping, I would guarantee that on-line retailers would find a way for consumers to shop easily. Otherwise, it would kill their industry.

  34. I’m with you.

    I use a reward card for every purchase and I pay off the balance every month, but if I start getting hit with fees, I’m dropping the card like a stone.

    Of course, I’m fortunate that I don’t carry a balance and don’t really *need* a credit card. I think this is yet another motivator to pay down debts to be able to have this kind of freedom.

  35. “Because of the two-month interest billing cycle that most credit companies apply, leaving $0.01 on your card may trigger interest on the entire balance. I’m not certain of how it works exactly, but another blogger explained it to me once. More research might be warranted and of course, you can always try it and see what happens…”

    This is more a response to all the comments about leaving 1c on the card. And it has nothing to do with double cycle billing (which is going to be illegal under the new laws anyway). You pay interest on the AVERAGE daily balance and not the balance you have at the end of the month.

    For example, say you charge $1,000 on the first day of the month and don’t use the card for the rest of the month. And then you pay $999.99 on the last day of the billing cycle. For this example, we will assume it’s a 30 day cycle. For 29 days you would have a balance of $1,000 and for one day you would have a balance of $0.01… $29,000.01 / 30 = $966.67 a day. So you would pay interest on that amount. That means you’ll end up paying over $15 (if your card has a 19.99% APR) for carrying that 1c balance.

    Obviously this example is simplified as most people use their cards several times over the month and may or may not have $1,000 charged over the course of the month. But the facts remain the same. You’re not going to win by doing this and you will be charged interest on the average balance and not the 1c.

  36. It’s not that often I defend the credit card companies (and those who have read my blogs such as bloggers against chase, robots against chase and the cat who ate chase bank and daily-protest would laugh right about now), but you are actually making a case for the credit card companies charging an annual fee.

    According to Kevin, borrowing a thousand dollars at 19.99 percent for one month, and then paying it ALL OFF every month, means you would save 15 dollars in interest rate charges for that month. So you can get the use of money from the credit card company for free, if you want to. And people who pay off their credit card bill every month in full can create a nice amount of savings over a years time. Maybe not 15 dollars every month since that would mean spending 12,000 dollars a year with a credit card, but maybe over the course of a year they get 50 bucks in free money because they pay it off every month in full.

    I think the real solution is going to present itself when all kinds of retail stores and restaurants offer to pay your one year’s worth of credit card fee if you spend x amount in their store. And it probably will be reasonable amount to spend.

    if Credit Card Companies were smart, they in turn would credit back a certain amount to any business that pays off a yearly credit card fee for a customer.

  37. @Alessandro: You are correct. I suspect merchants will be paying for the interest you used to charge on cards – in the form of increased merchant processing fees. Credit cards make a small percentage (2-4%) on each charge run through the card’s network. To make up for those who don’t pay fees and interest, the issuers will likely increase their merchant fees.

    In other words, someone is going to pay for the loss of revenues…us, the merchants, or both.

  38. 7-11 has been leading the charge to lower merchant processing fees because they are apparently much much higher in the U.S. than other parts of the world.

    I am looking for a compromise, the merchant fees get lowered and in exchange for that, merchants offer incentives to their customers to spend a certain amount in their stores and in exchange they will pay the credit card fee for one year, assuming the fee is a modest 20-25 bucks.

  39. “According to Kevin, borrowing a thousand dollars at 19.99 percent for one month, and then paying it ALL OFF every month, means you would save 15 dollars in interest rate charges for that month.”

    I would like to point out that this is not like you’re taking $15 from the bank that they deserve. It begs the question: What is a fair rate to charge a person who pays their balance in full each month? We need to consider the risk of default (as it is never 0%). We also need to consider the loss the bank would suffer because they can’t loan the money to a more profitable person for that time. And then, to complicate it more, we need to include the profit the bank makes from the fees charged to the business when you use the card.

    With a person who pays in full every month, the risk of default is very low. I don’t think a 19.99% rate is fair. I don’t even think a {prime} 8.99% is fair. I do not know what a fair rate would be for such a low risk loan. I feel like a 2-5% rate would be profitable for the bank (very profitable considering the risk). That would be less than $5 a month for a 30 day loan of $1,000. Less money charged and for shorter periods of time would mean you’re “taking” even less of the money the bank “deserves.” They set their rate at whatever it is but that doesn’t really mean what they are asking is fair or that you’re depriving them of their just returns.

  40. I agree that a 19.99 percent rate is excessive in most any situation. However, if someone is actually paying off their card every month, it doesn’t really matter what the interest rate is. At the end of the day, whatever the interest rate is, it still is free money if the bill is paid off every money, yet there is some risk to the credit card companies in the form of fraud and such.

    I’m advocating a special consumer debt paydown program for those who want to pay down their credit card debt. I believe the credit card companies should waive ALL future interest rate charges on EXISTING DEBT for anybody who can pay down their credit card debt.

    This would create an instant stimulus in local economies all over the country and is we follwed the path this newly freed money would take, we’d see that it would simply go through a few hands locally before it ended up at the banks anyways.

    The difference is more people locally would touch the money and this would result in more people being able to pay their bills.

  41. This fee (if it happens) will just add to the madness.

    It is already known that your credit score will be LOWER if you have no debt then if you have a small amount (they want someone who borrows).

    What’s next… Armageddon?

  42. What a scam. If they do this I will shred my credit card. Enough is enough.

    I have been waiting for just such an excuse to stop using a credit card. Why should a bank take a % of every purchase, anyway? Retailers and consumers are struggling too. Credit card fees are pure waste.

    We don’t need credit cards. Remember cash? And where cash will not work, there is always a check or a debit card.

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