Will I need a new credit card again?
We haven’t had much luck with our credit cards lately. Within the year, we had some issues when our Advanta business credit card accounts got closed with little warning. Advanta closed down their credit card division due to tough business conditions.
This time around, we’re hearing rumors about what may happen to our personal credit cards. You see, we carry and use Upromise rewards cards which used to be managed by Citibank. For years, we were happy with our cards, given that we were great customers who paid in full and on time, each month. Then came what we thought was a minor inconvenience: Upromise switches out their card issuer to Bank of America. No biggie for us just as long as they keep with the status quo. As it is, we like our Upromise World cards quite a bit!
Bank of America Credit Cards: Introducing New Annual Fees?
Except…. we’re now hearing that BofA is thinking of making some changes to their credit card terms, a rumor which has got many customers and consumer advocates up in arms. Apparently, the company is planning to introduce annual fees in cards that never had fees before. As a customer, I must say that this just blows. I really only care about having a good credit card rewards program and no annual fees to deal with, and it would be a shame if, after all these years, I end up having to do away with Upromise because of principle. And because I don’t intend to ever have to pay for the use of plastic.
Let’s place this all into context by reminding ourselves what the new credit card rules state. The Credit CARD Act of 2009 is intended to protect consumers from credit card companies’ more underhanded tricks. Here are just some of the proposed changes in the Act:
- Credit card bill payments will be applied to the highest interest portion of your balance rather than the portion that generates the lowest interest. This is contrary to what card companies want, which is to keep your high interest debt around for as long as possible (such as what you owe for cash advances).
- Interest rate hikes will be much more limited. With the new rules, you will no longer be getting rate increases for existing balances unless you fall delinquent on your account or you’re dealing with a promotional rate that expires.
- There will be limits on “over the limit fees”. This time, you won’t forget that charging over your credit limit will incur penalties and interest on those penalties; you’ll now be required to “opt in” before you’re allowed to charge beyond your credit limit.
- Credit card terms and conditions can only be changed after you’re given 45 days’ notice. So those with rewards points, for instance, can be alerted to the potential expiration of their rewards, way in advance. Hopefully this will mean “no surprises”.
Some of these rules have already passed, while others are set to go into effect in early 2010. As credit card companies anticipate these changes, many astute industry watchers, insiders and commentators have been predicting that some of these card companies may decide to pull one last trick or two out of their hats before the doors of opportunity close, so to speak.
Sneaky Bank of America Hat Trick
So is BofA trying to sneak one past us based on how they interpret a particular rule? With the company allegedly intending to introduce new fees with their cards, BofA insists that “annual fees” are not the same as “interest rates”. And while the CARD Act protects us from unexpected changes in interest rates, we’re supposed to think that annual fees are something else altogether and are therefore, not subject to the same rules.
Then again, there’s supposedly at least one court case that does establish a loose equivalence:
Interest = Annual Fees.
as per The Consumerist. But this is something for the legal eagles to handle.
Nevertheless, I’ve heard that Bank of America will try to “test” their customer base with the new annual fees. And while I think this is quite annoying, I wonder how much of this they can actually get away with — will their customers, like me, abandon them for the nearest No Annual Fee card? Or will there be loyalists who stick around? Who among us will simply roll around and take it, thinking that $30 a year isn’t really “that bad” in the whole scheme of things? The worst case scenario is that this sets a precedence for companies to start raising annual fees because they can no longer get away with much else. Sure, go ahead and pick on your best customers.
If this pushes through, I’ll regret having to abandon Upromise’s great rewards program that feeds cash rewards into my kids’ 529 savings plans.
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{ 10 comments… read them below or add one }
This is a blessing in disguise for you. The Upromise card only offers 1%. Try the Schwab rewards Visa instead; it deposits 2% cash back automatically in your Schwab account every month. That 2% is true cash; you can send it to another bank account via online transfer. It is worth the switch.
-Erica
Thank for your information about credit cards. Credit cards are very necessary. With the development of technology, credit cards are very needed. I often make payments online through paypal, although already have paypal, credit cards are still needed at times.
This is one of the reasons that i am weary of this plastic. Another reason is that i dont fully trust myself with them because i might be tempted to buy everything that i see on the internet. I read somewhere that this is the major cause of bankruptcy because people see it as money substitute rather than a money tool. I am planning on getting one in the near future but after careful consideration and research. informative posts like this really help
@Erica,
Thanks for the recommendation! Schwab is a good option, although I am leaning towards American Express or Chase rewards cards. I know a few people who have these cards and they all seem to be pretty happy with their choices. I’d have to check to see how to optimize these rewards based on our spending habits (e.g. would a flat 2% reward be better than one that pays 3% or 5% in individual spending categories?).
I like the Upromise program because I support their vision/premise. I made some tradeoffs that way.
@KenyanTykoon,
I actually love plastic, and I make sure I view and use it for what it is — a money tool. Whenever I use it, I *know* I am using my own money to spend. I never really understood how credit cards could be mistaken for “free money”.
I too am a BOA customer and it’s my longest standing credit card. If they begin charging an annual fee I’ll likely try to negotiate my way out of the fee and if that doesn’t work, I’ll be closing my account. For me it’s the principle of the matter.
I also feel that if more people take a stand, close their cards, and stop doing business with them all together (I closed my checking and savings with them earlier this year because of their unscrupulous business practices) they will finally get the picture that their customers are real people, not just numbers and pawns in their game to make as much money as possible. You have to treat others as you wish to be treated, and BOA would not be happy if they received the same treatment they give their customers.
If you make your payments in full and your cards don’t have any fees, then you are a very bad customer for the bank
I recently applied for and was approved for the American Express TrueEarnings Card with a minimum of 1% cash back on everything and up to 3% cash back on certain categories. That card is my personal favorite but I also have a Motley Fool BOA Visa Card that pays me 1% cash back on everything that I use as well.
One thing that many people do not realize about BOA that may change your outlook somewhat is that the BOA credit card division has been losing a ton of money because of credit card defaults for the last 5 quarters in a row (check my link for my report on this). It does make sense that they would start to add annual fees or do something to stop losing money so you really can’t blame them I guess.
I understand that credit card companies are trying to “stay afloat” here, but I doubt annual fees are where they should hit consumers (especially in light of the new CARD Act). They’ll just alienate their loyal customers, especially those whom they can rely on to stick to a regular payment schedule. Unless that special species of credit card that has no annual fees just goes extinct, you’ll have people switching to such cards in droves if their current issuers pull a fast one on them. BOA has very likely evaluated this risk and may have decided it’s worth trying out anyway.
Get this: BoA lowered the credit limit on one of my cards to BELOW the current balance then charged me an overlimit fee! They reversed it after I called them, did it again, then reversed that charge. The second one required my explaining the situation three times.
As far as paying off your balance each month being a bad customer for the bank — not true. Banks get paid every time you use their card. A considerable amount of revenue comes from credit and debit card purchases (I used to work in a bank.)
I’ve written some articles about credit cards that some people might find useful. I would start with Balanced Balance Transfers.
Not surprising considering Citi is hitting their bank account holders with a monthly fee trying to make up from the loss of revenue caused by the new credit card legislation.