Annual Credit Card Fees Being Tested

At the moment, not many credit card lines carry annual fees. However, that may not last much longer. Already, Bank of America has announced that they will be testing annual fees on selected customers next year. The fees will range from $29 to $99. Bank of America said that the choice of who gets the annual fees and who does not was based on the company’s assessment of “risk and profitability”. The company has not explained who gets the $29 annual fee, the $99 annual fee or any fee in between.

Bank of America is hardly the first credit card company to announce a return to charging annual fees, a once phased out fee in the credit card industry. Last August, Citigroup also announce to a few of its customers that they were going to be charged annual fees. Citigroup spokesman Samuel Wang was scant on the details, however.

These actions may just be the tip of the iceberg. Analysts foresee that more credit card companies may soon follow suit with their own versions of annual fees. CreditCards.com director of consumer research, Ben Woolsey said, “They’re trying to understand what the market will bear in terms of annual fees. They’re seeing what level (the customers) will endure without going away”.

Bank of America’s “annual fee experiment” comes as hardly a surprise. The credit card industry has been hit hard with the economic crisis, primarily due to payment defaults and charge-offs. It is also looking at a future where their profit making capabilities will be severely limited by the new Credit CARD Act. To note, the Credit CARD Act will limit the capabilities of credit card companies to introduce interest rate hikes and fees, among other things, in an attempt to protect the interests of consumers.

In their efforts to maintain profitability, credit card companies are now looking into their accounts and figuring out which ones are not showing much of a profit. These accounts usually include those that rarely or never carry balances and never incur late fees or other fees besides. In the past, these accounts were pretty much left along by credit card companies as they focused on making profits from credit card holders who were not very good at managing their credit. Credit card companies are, however looking at these accounts very closely now and figuring out how to make profits from them. Thus, credit card holders who have good standing are now seeing their interest rates rise and their credit limits being cut.

Bank of America’s latest test is therefore just the company testing how far they can go in their efforts of making profits from good creditors. According to Woolsey, “If (the test) proves successful, it could become the norm. It is somewhat up to consumer reaction’.