Credit card issuers were expected to raise fees and cut rewards to compensate for lost revenue from new regulations. But some have done the opposite, eliminating fees they are still permitted to charge.
Most banks have increased certain costs, such as purchase annual percentage rates, and added annual fees for some cardholders in response to the Credit Card Accountability, Responsibility, and Disclosure Act's new restrictions on rate increases, penalty fees and other terms. The ones that have also eliminated fees — including Bank of America Corp. and Wells Fargo & Co. — claim they did so as part of an effort to be more transparent.
Some experts offer another explanation: it may simply be cheaper for issuers to drop these fees rather than bring them into compliance.
"It doesn't probably cause them to give up too much revenue by not imposing something that is hard to impose," said Tim Kolk, president of the card portfolio consulting firm TRK Advisors LLC in Peterborough, N.H.
Under the CARD Act, issuers may not raise rates on a fixed-rate card in the first 12 months of an account being opened unless a customer is 60 days past due. In most cases, issuers must also give 45 days' notice of rate and other fee changes.
"Firms are doing their best to take the things that they have to do and put a positive spin on them in terms of how they're promoting these changes and promoting themselves to existing and new cardholders," said Doug Miller, senior analyst for banking and cards at the financial services research firm Corporate Insight.
Bank of America in recent months began highlighting in card offers that it does not charge a penalty APR for cardholders who miss payments. Additionally, the issuer has stopped charging late-payment fees for cardholders with balances of $100 or less.
B of A had been criticized for not disclosing a specific penalty rate in some of its offers that stated it may raise interest rates if an account became 60 days past due. Several consumer groups in July sent a letter to the Federal Reserve Board, which is in charge of putting the CARD Act provisions into practice, citing B of A for potential violations of the law because it did not list a specific rate and did not include the information in the required table in card agreements, also known as the Schumer box.
Chip Rossi, the credit card products executive at B of A, said the bank decided to stop charging a penalty rate and late-payment fees for certain cardholders as part of its effort to make products easier to understand. He said that in 2009 the company started its Credit Card Clarity Initiative, which aimed to make specific fees and terms more prominent, and also applied the changes to its small-business cards, which are not subject to the CARD Act.
"When we thought about those customers … who are three payments past due, generally speaking those customers are having some financial difficulty at that point in time," Rossi said in an interview Monday. "We didn't think increasing price at that point in time would be prudent."
B of A's penalty rate change took effect in February, when many of the CARD Act provisions took effect, and its late-payment fee change took effect in August, when other measures went into effect, Rossi said. "We're consistently evaluating the products we have to ensure the fact that we've the right products at the right price for the right consumer."
Wells Fargo, which primarily issues credit cards to current bank customers, stopped applying penalty pricing to qualifying accounts on July 6, a spokeswoman said by e-mail. The San Francisco bank did keep customers who went into penalty before July 6 under the penalty rate, the spokeswoman wrote. Those customers will stay there "until they cure pursuant to the terms of their credit card agreement."
"Our pricing reflects the current business environment," she wrote. "Our intent is to continue to provide credit to as many customers as possible."
That an issuer would eliminate some fees goes against the predictions of many analysts, who had forecast a raft of new cardholder fees and the demise of rewards programs and promotional offers as a result of the CARD Act.
While purchase rates and fees for balance transfers have risen, such predictions have largely been unfounded, said Andrew Davidson, the senior vice president of Mintel Comperemedia.
Issuers in the last year have increased their volume of direct mail offers, many for cards with rich rewards and long promotional periods, he said.
About 1.2 billion new credit card offers were sent to U.S. consumers in the third quarter, up from 391 million a year earlier, according to Mintel Comperemedia.
"We've got a significant increase in competition in the mailbox, so issuers are really needing to stand out in any which way that they can," Davidson said.
In addition to having to provide 45 days' notice for most rate increases, under the CARD Act issuers must do a "look-back" every six months on accounts that have had a rate increase to determine whether they should be reverted to the previous rate.
For late-payment fees, it may be less expensive for many issuers to not charge a fee for low balances because of the rules that took effect in August. The Fed set maximum penalty fees, including those for late payments, at $25 unless an issuer is able to demonstrate that their costs stemming from such infractions are higher. A second late payment within six months allows an issuer to charge up to $35.
Additionally, a penalty fee may not be higher than the cost of the infraction that triggered the fee. For example, a cardholder who misses a minimum payment of $15 could not be charged a late fee of more than $15.
"Not many people who get in trouble have such a low balance," said Odysseas Papadimitriou, the chief executive of Evolution Finance Inc., the parent company of the lead-generation site CardHub.com, and a former marketing director at Capital One.
Issuers frequently waive late fees associated with such low amounts because often they stem from residual interest or some other charge that a customer was not aware of, Papadimitriou said.
Rossi acknowledged that there are limitations for charging late fees, but he reiterated that the move is in line with what customers request. "It's another point of differentiation for us with regard to the competition," Rossi said.
Davidson said that despite the changes in disclosures such as B of A's, "it certainly seems that within the language of these offers there is scope to review an account should a consumer default or be late on their credit card."
For example, an offer B of A mailed last month for a cash-rewards card that advertises no penalty APR also said the issuer may change the terms "based on information in your credit report, market conditions, business strategies, or for any reason."
