Credit card users take note: Nightmarishly high annual fees and a laundry list of new fees once predicted as outcomes of the new credit card reform law have not come to pass, according to the results of the 2011 CreditCards.com/Bankrate.com fee survey.
More than nine out of 10 cards (95 percent) in the survey had no annual fee, up from 90 percent of cards in the 2010 survey. Overall, the survey found that fees have changed little in the first year since major provisions of the Credit CARD Act of 2009 took effect.
"It's not as bad as a lot of people said," says Chris Fichera, associate editor of Consumer Reports magazine. "The issuers are a little bit afraid."
The credit card reform law brought sweeping changes to how credit cards are regulated in the United States and clamped down on lenders' ability to hike interest rates and impose fees. Before and after passage of the law, banks and industry analysts had warned that the reforms would lead to higher fees and the return of annual fees as routine charges to all credit card accounts.
That hasn't happened.
"The idea that there was going to be huge portion of cards charging annual fees as a result of the CARD act definitely has not materialized," says Fichera.
The annual CreditCards.com/Bankrate.com fee survey tracks the amount of fees charged for various credit card related services by the 50 largest card-issuing banks and credit unions based on credit card balances. The 2011 survey included 66 cards, selected because they carried no or the lowest annual fees and were among those most widely issued to consumers with average to good credit. The survey of card offers was conducted in May 2011.
According to the survey, late fees, now capped at no more than $35 by the CARD Act, have dropped slightly from the previous year to comply with the law. Fees for cash advances, balance transfers and foreign transactions have remained the same. ( See fee survey results below .)
Pew study: Fees stabilized Nick Bourke, director of the Safe Credit Cards Project sponsored by the Pew Health Group, which tracks credit card terms and fees, says the CARD Act has helped stabilize and bring transparency to credit cards. A May 2011 Pew survey of more than 300 credit cards issued by the top 12 banks and top 12 credit unions mirrored results of the CreditCards.com/Bankrate.com survey. Pew researchers also found no significant increase in fees. The percentage of bank-issued cards with annual fees rose only slightly between 2010 and 2011, while the percentage of cards issued by credit unions with annual fees remained the same. The study noted that 40 percent of all credit cards in the survey waived the annual fee during the first year.
Although there have been a few creative new fees, such as charging customers to receive paper copies of their monthly statements, they have not been widely adopted by major issuers. Says Bourke: "We have not seen an increase in new fees … Fees for receiving statements have not become common."
Why fee frenzy fizzled Beth Robertson, director of payments research for card industry consultants Javelin Research, says a number of factors led to the fee hike fizzle. The economic and political landscape made banks rethink any plans to jack up fees. The reason: banks and credit unions didn't want to scare off good paying customers nor did they want to attract too much attention from regulators that would cause more lending restrictions.
The July 2011 launch of the new Consumer Financial Protection Bureau (CFPB) -- a powerful federal agency that will oversee credit card, mortgage and other lending practices -- has caused banks to back away from new fees, Robertson says.
Future CFPB oversight "is keeping banks very aware of being cautious about the fees that they are charging and how they are putting those into play … They don't want to see additional regulation."
Another factor: The Wall Street reform law, which established the CFPB, also includes restrictions on debit card interchange fees. Under the so-called Durbin amendment, debit card processing fees collected by banks every time consumers swipe their debit cards would be reduced by as much as 80 percent from current levels. The Federal Reserve is still reviewing public comments on the proposed interchange rules, but Chairman Ben Bernanke has said he expects the final regulations to take effect on schedule on July 21, 2011.
Impact of debit card rules "Now, with Durbin, there are potentially some reasons that [banks] don't want consumers to use debit. They want consumers to use credit cards," Robertson says. "There is less justification for banks to do things that would inhibit consumers from using credit cards."
In the wake of the Great Recession and negative publicity about credit card fine print and "gotcha" terms, consumers have dramatically reduced their use of credit cards. According to the Federal Reserve's monthly G.19 report, which tracks consumer lending, outstanding revolving debt dropped from $974 billion in August 2008 to $796.1 billion in March 2011. Part of the decline was due to banks writing off uncollectable credit card debt, but part of it was also attributed to consumers saving more and using cash or debit cards instead of credit cards.
Robertson says banks are reluctant to do anything, such as massive annual fees, to further reduce credit card borrowing, "Because we've had this shift away from credit over the last couple of years."
She adds: "They don't want to do anything to make people think twice about using credit cards," Robertson says. "They want to encourage people to use credit cards."
Robertson says annual fees are more likely for customers with poor or bad credit because they are more risky.
Fichera, from Consumer Reports, says there's a growing trend to have multi-tiered offers for the same card. "The one with the annual fee will have higher rewards points.The non-annual fee card will have lower rewards and redemption points."
Here is a breakdown of what the CreditCards.com/Bankrate.com annual fee survey found, along with tips to help consumers avoid getting hit with fees:
Annual fee: There was no annual fee on 63 of the 66 cards in the survey, an indication that card issuers are reluctant to lose good customers by charging an annual premium for the privilege of having a credit card. The fees ranged from $15 to $39 on the few cards that did carry annual fees. Tip: If you have good credit, your credit card issuer will likely waive the annual fee during the first year or not charge one at all. Ask your lender to waive the fee. When comparing rewards cards, determine if the amount of rewards will offset any annual fees charged to the account.
Over-limit fee: Credit card issuers may charge fees if customers exceed the credit limits on their accounts. The CARD Act requires lenders to get customers' permission beforehand (called opting in) to charge over-limit fees on credit card accounts. Because of this restriction, several major issuers stopped charging over-limit fees. The survey found that 79 percent of cards have no over-limit fees, up from 60 percent in 2010. For cards that do assess over-limit fees, those charges range from $15 to $35, about the same as 2010's $15 to $39 range. Tip: Don't opt in to over-limit fees. Avoid exceeding your limit by keeping track of your account balance. Large lenders have free services that allow you to receive daily alerts of balances to better manage your spending and avoid exceeding your limit.
Late fee: The CARD Act limits the amount that can be charged for late payments to $25 for the first offense and $35 for repeat offenders within the next six months. The majority of the cards in the survey (79 percent) charge late fees according to that guideline. Two cards don't charge any late fees and the rest charge between $5 and $25, depending on the card's balance or how late the payment arrives. Late fees ranged between $0 and $39 in the 2010 survey. Tip: Avoid late fees by paying the credit card bill as soon as it arrives. Set up online payments to automatically pay the bill electronically each month. This avoids any delays that can be caused by U.S. Postal Service errors. Too many late payments can bring down your credit score, so avoid them if at all possible.
Balance transfer fee: Credit card issuers encourage their customers to transfer balances from other, higher interest cards to new or existing accounts. Doing so can generate a balance transfer fee. These fees are typically based on a percentage of the amount being transferred, with minimum or maximum amounts set by the issuer. The majority of cards in the survey (58 percent) charge no balance transfer fee -- up slightly from 55 percent in 2010. Nearly a quarter of cards (23 percent) charge 3 percent on balance transfers. Minimum and maximum amounts vary. Tip: Check the terms of the deal before transferring the balance. Many credit card issuers offer zero percent interest on balance transfers for the first six to 12 months. Be sure you know what the regular interest rate will be once that special promotion ends. Also, mark your calendar with a reminder about when the zero-percent promotion ends. You may want to shop around for another balance transfer deal before the interest payments starts. Note: If you miss a payment or pay late at any point during the zero-percent promotion, interest payments could begin sooner.
Cash advance fee: Cardholders who get small loans -- known as cash advances -- using their credit cards pay upfront fees for the service based on a percentage of the amount being borrowed. Issuers typically cap the level of the fee at a maximum amount that varies by the card. In the survey, 30 percent of the cards assessed no cash advance fee; 30 percent charged 3 percent, 12 percent of the cards charged 4 percent in fees; and 9 percent of cards charged 5 percent in fees. Tip: Credit counselors advise against ever using cash advances because they have such high fees and interest rates. If you do use them, pay them off as quickly as possible to minimize interest payments.
Foreign transaction fee: Banks and credit unions charge fees for credit card transactions that are made in foreign countries or use foreign banks to process the transaction. You don't have to be on foreign soil to incur a foreign transaction fee. Purchasing something online from a merchant using a foreign bank can cause this type of fee. The fee often consists of two parts: a fee charged by the credit card issuing bank and a fee charged by the payment network (such as Visa or MasterCard). The survey found foreign currency fees of 3 percent and 1 percent were the most common charged. None of the cards in the survey had foreign transaction fees higher than 3 percent. Some issuers charge lower fees for foreign transactions conducted in U.S. dollars. Tip: Before you travel or before making an online purchase, ask your card issuer what fees are associated with transactions that go through foreign banks or are processed outside of the United States. Find a card issuer, such as Capital One, that charges no foreign transaction fees and use that card for foreign purchases.
Other types of fees: The most common fees found in the survey were for returned payments, stopping payments on convenience checks, receiving a copy of monthly statements, replacing lost cards or for using the credit card as a source of funds for overdraft protection Tip: Stay abreast of the terms on your credit card. The CARD Act requires lenders to notify customers at least 45 days before significant changes take effect on accounts. If you receive a change in terms notice, be sure to pay attention to any fee changes and how they may impact your account.