Credit Card Issuers Up to New Tricks

The Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the CARD Act, is having unintended consequences.

Originally intended to reshape consumer finance and regulate fees and charges by credit card issuers, it has spawned new and creative ways for credit card issuers to make money.

The CARD Act, which requires card issuers to give customers notice about interest rate increases and restrict certain controversial billing practices, such as inactivity fees, was expected to wipe out approximately $390 million a year in fee revenue, according to industry sources. Indeed, a July 16 report from Bank of America Corp. warned that the CARD Act and other regulatory changes would prompt the bank to write off up to $10 billion in the third quarter.

But banks and card issuers are fighting back. According to a July 22 report from Pew Charitable Trusts, the median annual fee on bank credit cards jumped by 18 percent to $59 between July 2009 and March 2010. Annual fees at credit unions soared 67 percent and median cash-advance and balance-transfer fees jumped by 33 percent, all perfectly legal under the new Act.

Another technique is the issuance of so-called professional cards. These are like corporate cards but carry the same terms as consumer cards and are not covered under the new law. One source indicated that issuers sent out 147 million professional-card offers to U.S. households in the first quarter of this year, up from 13.2 million in the corresponding period last year.

Another technique is so-called rebate-card offers, offering to refund up to 70 percent of finance charges when customers pay on time. Rebate offers are not governed by the CARD Act and issuers can revoke them suddenly and hit card holders with large charges.

Other practices invoked to make up the shortfall include increasing foreign transaction fees by 50 percent and increasing average minimum monthly finance charges from $.50 to as high as $1.50.

The moral of the story: Make your card payments on time and dispute any questionable fees. Cut back on the number of credit cards that you carry and keep only those whose fees and practices appear manageable.

Fritz Coombs can be reached at fcoombs@hhmlaw.com or at (330) 744-1111.