Thursday, 3 March 2011

Bank of America’s Proposed Fees Defy Credit CARD Act Regulations

Bank of America recently announced its intention to apply new $59 annual fees to about 5% of its existing credit card accounts, the Associated Press reports.
These fees, according to Bank of America spokespeople, will be assessed based on consumer risk and will mainly apply to those customers with consistently high credit utilization, below-average FICO scores and a track record of late payments. While technically legal, I believe that these fees come dangerously close to running afoul of the Credit CARD Act of 2009.
Specifically, they seem to contradict the stipulations instituted by the CARD Act which make it illegal for credit card companies to change the interest rate on a consumer account unless the account holder becomes at least 60 days late on his or her payments. This law was implemented to prevent issuers from arbitrarily increasing the cost of their customers’ debt, and that’s exactly what Bank of America is about to do. They’re simply calling the extra costs membership fees instead of interest rates.
You see, membership fees and interest rates are both finance charges, and they both have the same practical effect, meaning that assessing fees on accounts with existing balances is tantamount to applying increased interest rates. For example, tell me what the difference is between a credit card company turning your 0% APR credit card into a 5.9% APR credit card and the company instituting a $10 monthly fee? The answer: Not much. Both changes increase the finance charges on your existing balance; which one is worse for your wallet depends on your exact credit card balance.
It’s important for banks to realize that it was their propensity toward baiting consumers with certain pricing only to later switch to higher terms, even when consumers did nothing wrong, that brought about the CARD Act in the first place. Bank of America’s proposed fees continue in that tradition, and if BofA and the other major banks prove themselves incapable of self-regulation, not only will these membership fee changes be capped, but there might also be a more comprehensive regulatory backlash as well.


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