Outline of Various Credit Card Fees

Bank of America, based in Charlotte, N.C., boasted a circulation of 80.2 million credit cards last year.  It is the third largest credit card company behind first place J.P. Morgan Chase, which has a circulation of 119.4 million.  Bank of America has recently considered raising the annual fees on all of its credit card products from $29 to $99 dollars on select customers.

With new regulations looming in the future that will significantly curtail how card issuers can increase interest rates and fees, banks are now trying to maximize their revenue “opportunities” before the regulations take effect.

Banks are now closely examining their least profitable accounts.  Those are the card holders who carry little or no balance, who do not pay late fees, or finance charges.  Before, banks would leave these consumers alone as they made their profit on customers who carried balances and were not as diligent in paying their bills.  Many card issuers are now considering charging annual fees on the so-called “deadbeat” accounts that are not big revenue generators.  With all of the discussion about the wide variety of fees that are utilized by card issuers and banks, we’ve provided an outline and description of all the various credit card fees that are now being used.

Interchange Fees

Because of the new fees that are showing up, many consumers are opting out of their existing cards and switching card providers.  As a result some providers will not be collecting the same interchange fees that they typically have charged merchants in the past.

The interchange fee is the cost that a merchant bank pays a customer’s bank when using the card.  Those fees are passed on to the consumer.  One is a fixed fee for every transaction that occurs, and one is a percentage depending on the dollar amount.  It is estimated that for every $100.00 you spend, two dollars is used for fees.  Retailers are bound by these fees if they want to use the credit cards.

This is a big money maker for card companies as the average interchange fee in the U.S. is seven times greater than the interchange fees charged in other countries. If you decide to cancel your card because of a high annual rate the loss of revenue from interchange fees to the card company may be significant.

UnfairCreditCardFees.com reports that in 2008, Americans paid over $48 billion in interchange fees, three times the amount paid for ATM fees and two times the amount paid in credit card late fees.  The amount that the average American paid in credit card interchange fees last year averaged $427.

In some instances the companies are making more money from each credit card transaction then they are from late fees.  If a company offers you a card with no interest for six months you must wonder how they make their money.  Now you know.  Each transaction is worth approximately 2% of your purchase back to the company.

Most consumers don’t know that there is a ‘hidden’ fee for using their card.  This fee is covered by the merchant by adding it to the retail price.

Credit card late fees and ATM fees are not hidden.  They are publicized and noted on the monthly statements.  Interchange fees are not.  These fees are set privately and are not negotiated.

Other Fees

Late fees can add up.  Depending on your balance, Bank of America has a scaled rate schedule for late fees.  The less you owe the less the late fees.  If you owe less than $10.00 then your late fee is $ 15.00, but if you owe more than $250.00 your fees are 39.00.

NSF and overdraft fees are charged when the bank sees that your account is overdrawn.  Being overdrawn $10.00 or more will incur an overdraft fee.  This varies among banks and usually runs around $35.00.  If you are unsure of your account balance or have a shared account you can get overdraft protection that links your accounts to prevent overdraft fees and NSF checks.

New Regulations

These new card regulations are designed to protect consumers from arbitrary increases in interest rates.  One new change is the requirement that cardholders receive a 45 day notice before their rates are increased.

The new rules, which will take effect in July 2010, will allow credit card companies to raise interest rates on new subscribers, rather those on existing balances.  This is to protect card holders from being surprised by a substantial rate hike.

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