Credit Card Reform Has Changed the Game
Congress recently passed the Credit CARD Act of 2009 to protect consumers from unfair credit card practices. Here’s a good summary of the Credit CARD Act in laymen terms. However, banks are scrambling for ways to protect themselves before the law becomes effective. As a result, there are unintended consequences of the new law that will negatively affect consumers.
One, in particular, that concerns me is Bank of America’s plan to assess an annual fee ($29 to $99 per year) on consumers who are not profitable. These are consumers who don’t use their credit card(s) frequently and/or pay their credit card bill(s) in full and on time every month. They call us deadbeats because they don’t earn interest, collect late fees or over the limit fees from us.
Even though I chucked the deuces to Bank of America a long time ago, I’m sure other credit card companies will follow suit and I heard Citibank is one of them. Thankfully, my favorite bank has never followed the pack during the market boom or subsequent bust. In fact, their slogan is “we value people over profits.“ I love that! But I want to be prepared just in case.
As I said on twitter yesterday:
I will never patronize a business that offers no value to me. Especially one that focuses more on their bottom line than the service they provide to their customers.
I know I’ve blogged many times about how much I hate cash and why I prefer credit cards, but I refuse to give a credit card company my hard earned money as an annual fee without anything in return. Apparently they don’t realize, the consumers they’re targeting (i.e. deadbeats) are the consumers who have the most choices and control over managing their own money.
As a trial run, this is what I’ve decided to do:
Effective tomorrow, 1 November, I’m going to use cash only for an entire month to test the waters. I’ve paid all of my credit card balances in full today so I won’t have to think about them. I’m preparing myself now because I want to be ready. If any credit card I own sends me a letter that says, “Hi Single Ma! Here’s your new CC terms, and by the way, we’re charging you an annual fee” – I want to be confident that I can immediately say “KISS MY ASS!” in a language they understand. Close my card, please and thank you.
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Have you read the Fabulous Financials comment policy lately?
I just got hit up for an annual fee on a card that doesn’t have a balance. Since the card hasn’t had a balance since March, I haven’t gotten any statements, therefore, I got a late fee for not paying it! I want to close the card, but won’t that hurt my credit score?
A closed card in good standing remains on your credit report for 10 years from date of closure. The impact to your credit score (if any) is due to a lower utilization %, which is based on your total debt balance divided by your total available credit. Because the denominator is lower, the util % will be higher. However, if you don’t carry a balance (the numerator), closing one of them will cause very little damage that will correct itself with time.
Even if you didn’t receive a statement, you should have received a notice in the mail when they changed your terms. Do you ignore mail from your bank(s)?
And are you more concerned about the impact to your credit score rather than paying a ridiculous, unnecessary fee? *blink* [-SM]
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I’m right there with you. I can’t believe banks will risk losing good customers just to collect some ridiculous fees. They may not make money off of us with interest and late charges but they still make money from the merchant fees.
Thankfully, I have a credit card from my credit union that I can use and I’m pretty sure they won’t stoop to such ridiculous actions.
I agree, the only major CCs I have are USAA, Navy Fed, and Amex. I doubt if either of them will stoop so low, but I’m keeping an eye out just in case. [-SM]
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I was thinking about this the other day. I’m with you in that I will cancel a card with the quickness if they try to assess annual fees. I use my my Citibank CC for just about everything and pay on time and in full every month. I have no problem going to an all cash system if that is what is necessary to avoid paying stupid fees, just on principle alone.
Great minds…
[-SM]
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Can I close cards that I have balances on? Can they still jack up the rate on cards that I close? I can’t wait to be debt free and no longer at the mercy of credit card companies.
Sure you can. The best way to ensure that you’re never at the mercy of credit card companies is to live within your means and maintain control over where your money goes. [-SM]
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I’ll be interested to see how it goes – are you going to ‘allow’ yourself the use of a debit card, or are you going to pure folding money? I have the ‘where did all my cash go?’ problem when I’m not using plastic, so any tricks you learn to avoid that will be great to hear.
I can’t help but wonder where this ‘get all the ‘deadbeats’ thing will head, eventually- I could see them tightening up so that cards that go unused for years are off the books, but I really wonder if they’re going to remove all of us who pay in full but bring in merchant fees. Maybe the market will separate, with monthly credit on one side, long-term credit on another.
And one addendum to your point above about credit scores and closing accounts – even if you pay in full each month, you may still have an impacted utilization % depending on when your score is pulled. Our reports got run after I bought a scooter on my cc, and the balance wasn’t due yet. No late fees, but my utilization #s tipped over 50%, since I’ve got low-ish limits. I mention this NOT as a reason to keep cards with fees or other ridiculous terms, but because it never occurred to me to pay off the balance before going in for a mortgage, but it def. helped us when we got the paperwork finalized.
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I use credit cards to make big purchases mostly for the automatic insurance you get once you spend over 100quid. (on some cards). But like you, I pay it off fully that same month.
I know banks are about profits, I don’t begrudge them that, but isn’t the fact that they use customers money as collateral as well as leverage for their investments good enough for them?.
I’m not paying anyone money for the priveledge of using my money to make money for themselves. That’s like ‘insult + injury.’
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Not all banks takes its opportunities to costumers. And as costumers it is our decision a yes and a no to their offers and charges they would ask from you.
http://www.badcreditresources.com
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Love your blog.
Seems big businesses have us coming and going. The real cynical thing is that credit card companies have already figured in an attrition rate when they implement policies like this. They know a certain number of “deadbeats” are going to go elsewhere and figure these lost earnings into the higher fees they charge everyone else.
Furthermore, they know that most big banks will follow their lead giving deadbeats fewer alternatives.
That’s why I for one try to do all my business, including credit card, with my credit union. Fewer fees and more favorable rates.
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I’ve often read that people who switch from credit cards to cash spend a lot less money–20% is the oft-cited figure. I’d be interested in hearing if this is the case for you. In my previous experience, I’ve found that I spend more when using cash because it burns a hole in my pocket. I look for reasons to spend it, crazy I know. This month isn’t going very well so far. I’ll post an update soon. [-SM]
I have a BOA card which I’m required to use for business airfare. I only use it once a year. I wonder if corporate cards will be affected….
Final comment: I think credit unions tend to have no-fee credit cards, so that might be the way to go.
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I’m a Bank of America customer and I’ve never had problems with them. This would be a problem. I haven’t received a notice from BofA regarding this change but I will be contacting them to see if my CC will be affected. I don’t use it that often, maybe once a year and I’ll be derned if I’m going to pay a fee.
I only use my Amex and a Chase card for places that don’t accept Amex. I can’t wait to see how your cash only process works. Do you have bills that are charged directly to your CCs? I guess I could try cash only with the exception of that – my cell phone, gym fees and a few other bills go straight to my Amex.
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Temptations to incur debts come in many form. I can name one very alluring yet dangerous temptation- The Credit Card.
Credit card is such a temptation for both young & old. Well, it was for me. God knows how hard it is to have financial debacles. I know the feeling well having been in neck deep in liabilities before. I consulted all the so called experts out there. Even asked for advice on how to do debt elimination without bankruptcy. Geez! It was definitely a nightmare! So, I persevered & scrimped & saved to be able to fully pay my debts. And, I did eventually won over my debts ;)
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