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Bank of America Adding Annual Fees to Credit Cards

This article was written by in Credit. 33 comments.


With the current and upcoming changes in the credit card industry due to the Credit CARD Act and other regulations put in place by the Federal Reserve, banks and credit issuers are maneuvering as much as possible to be in a good position to continue making money off their customers. Public corporations have responsibility to their shareholders to protect their bottom line, and with the threat of reduced profits due to new regulations you can be sure these companies will try anything within the realm of possibility to survive.

Bank of America has announced some anticipated changes to their credit cards that shows what the future might look like: more credit cards will carry annual fees. These new fees, according to the bank, will range from $29 to $99. And unlike most fee-bearing credit cards, the customers receiving these charges may not have cards that offer premium services like a concierge or extensive rewards.

One of the criteria Bank of America will use to determine which customers are lucky enough to receive the fee is “profitability;” in other words, those of us who don’t send the bank extra in the forms of interest payments and late fees or those who use their credit card infrequently — the responsible users of credit — are likely to be assessed the fee. Bank of America could easily determine which customers are not profitable for the company and charge this annual fee to make them profitable.

For now, there are many fee-free credit card choices for responsible users. The climate might change soon, however. Even the most diligent credit card users, those who manage to use cash back rewards and other benefits while paying off their balance in full every month, might find that the new environment will point to a cash-only spending plan for the best deal.

BofA to charge annual fees on some credit cards, Candice Choi, The Seattle Times, October 13, 2009

Published or updated October 14, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 33 comments… read them below or add one }

avatar Apex

There is a misconception out there that banks only make money off customers who pay interest. That’s entirely false. The minimum credit card fees are 2% of any transaction. 0.5% of that goes to the merchant bank which represents the seller, not the card holder. And 1.5% of that goes to the cardholder’s bank. 1.5% of every single dollar spent for doing basically nothing. It’s a rediculously high percentage for something that is so commoditized and so free of expenses as is the electronic clearing of credit card transactions.

Now granted the cardholder’s bank has exposure because some people default. That’s what the high interest is for. To cover the bad credit risks. Those of us who don’t carry balances and don’t pay interest are of zero risk to the cardholder’s bank. ZERO as in free money. 1.5% of every transaction for ZERO risk. Where do I sign up?

This is why all these different companies are giving 1% cash back because that 1.5% fee is literally a cash cow. It’s a market anomolly that if it weren’t for the monopoly that the credit card clearing house has on setting those fees would never exist. So if they want to find profit there is all kinds of room in that 1.5% fee. They could just start lowering their cash back percentages. Frankly that fee should be no higher than 0.5% and then it would still be great plenty for doing almost nothing.

The idea that they need to charge you an annual fee to be allowed to make FREE MONEY off clearing your transactions is a joke, and any bank that tries that on me, can find my shredded card in the mail with instructions on where they can stick it while they kiss my posterior and my free money good bye.

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avatar Luke Landes ♦127,485 (Platinum)

Absolutely right, even those who make the most of their rewards are lining the pockets of Visa, MasterCard, and American Express. (Note these aren’t the same companies that benefit the most from fees, the issuers — except American Express who is the processor AND the issuer in most cases.)

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avatar Apex

I didn’t know that about AMEX, but I guess you don’t usually see a bank name on a AMEX card. So they get both ends of the fees and have about 1-1.5% higher fees than Visa/Mastercard.

Frankly, why does anyone take this card? And why does anyone carry it? I really don’t understand how they maintain their ability to charge nearly double the market rate (which is already too high) when I can’t think of a good reason for a merchant to accept their cards. If I was a merchant I never would.

Can anyone explain why AMEX can maintain this well above market fee structure?

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avatar Ryan@TheFinancialStudent

Just wanted to add that Discover also issues its own cards.

From what I pieced together on Wikipedia, AMEX cardholders are typically more affluent than the average credit card user. So AMEX suggests to merchants that they may lose (profitable) customers if they don’t accept AMEX.

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avatar Steve

+1 to what Apex said. It’s certainly true that interest charges and more recently the abundance of fees such as overlimit fees have both been great profit sources for credit card issuers. However, even a so-called “deadbeat” generates plenty of money for the issuers. People who use their cards regularly, especially those who use it a lot for all their middle-to-upper-middle class spending, will continue to find cards without an annual fee. Even lower spending consumers should be able to find such cards, though they might not get 1% cash back or perhaps might have to agree to get electronic statements or something.

Basically I think this “we’re all going to get annual fees” stuff is FUD coming straight out of the mouths of industry spokespersons. Too bad for them it’s too late!

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avatar Julio

Personally, I don’t see how they could asses this fee unless all banks did so simultaneously and gave us no options. If one bank started charging these fees they would simply force customers to close accounts and move on, especially if they target their ‘“deadbeat” customers whom typically have better credit and more options as to which cards they choose to carry.

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avatar bromoney

Does this mean there will be new fees for cards we already have? I certainly would close any card that would start to carry a fee.

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avatar Anonymous

There are plenty of no fee credit cards to choose from so it will be interesting to see how many people switch from using their BOA cards to other cards if they get hit with fees (especially when some of the BOA cards don’t have the benefits that many of the other cards have).

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avatar Dan

@Apex: Every card user carries risk. Every. Single. One. Every time you use your credit card, the bank is lending you money for that transaction. And with that, there is a small risk that you won’t pay it back. (Why do you have to pay interest to be a risk?)

One thing that I never figured out is why most consumers think they have a god-given right to no-annual fee credit. I consider myself lucky that those products are available, but I don’t feel entitled to it.

As for me, my BofA card is my oldest trade line. I’ll likely pay a small annual fee to keep it open.

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avatar Apex

Yes you are correct that there is the risk that I suddenly stop paying. But the history is that I never carry a balance, and thus I have the funds to pay. If I start carrying a balance then I might not pay, but then I am paying interest, high interest, and I go into the pool of people who are much higher risk and thus pay the high interest penalty.

But the point was about those who never carry a balance and that those people are making the company no money. But they are, and they are doing it in a way that posses no risk because the company always gets all its money back if I never carry a balance. But I do get your point that until I give it back there is always the chance that I decide to change my habit or that my finances change and that is the small risk.

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avatar Apex

Also, I don’t think I have a right to a annual fee free card.

But I do expect the market to work. And when they have this 1.5% fee of all transactions going over the card and I charge probably 20K on it in a year ($300 of fees), they then need charge me 30-50 bucks just for the right to collect those fees? I don’t think that makes any sense. If there were no fees to clear the transactions above the costs to the issuer, then sure, that would make sense. But the profit is built into the model, and the profit it provides is plenty big.

There is no need to charge a fee.

That goes right into things like checking account fees. Why does a bank need to charge me a fee to keep my money and pay me zero interest. Yes they have costs associated with having tellers and clearing checks but they get other business from you by you being part of the bank and my account has to float between 500-3000 dollars a month to make sure I have enough funds in it. So they get to keep all that money all year long and pay me nothing for it. I don’t think they need to charge me a fee and there are plenty of banks that don’t so I sure wouldn’t have an account at one that did.

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avatar janice schmidt

I wonder if you know how much money they make on every transaction you make? The merchant or business is charge varying fees for the privilege of accepting the card for payment. I have owned a small business for 30 years and know their fees. They DO NOT need an annual fee from you and I.

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avatar deb

I can only assume from your comment that you are either a lowly bank employee or very young. I also owned a small business many years and paid fees for handling their cards. I have watched banking get more and more unethical through the decades. It is sad to see ‘especially the young’ who accept such propaganda as truths. Keep on paying BOA for the “privilege” of using their card. That’s what their counting on! The dumbing of America keeps trucking.

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avatar Clyde

I should be a popular guy to credit card companies. I carry balances, but always pay on time and in all cases pay more than the minimum payment. Credit card companies have been enjoying the interest I’ve been paying. I’m now beginning a different approach working diligently to pay off those balances. I can say there are two companies who will want my biz one day who will not get it, B of A and Chase. Both companies have either levied additional fees or reduced credit lines which doesn’t help when your credit score is impacted by your balance vs your credit line. Thank you Capital One and USAA who recognize my value as a loyal cardholder. They will continue to have a place in my wallet.

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avatar Robert

Looks like I won’t be getting a B of A card anytime soon, then.

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avatar Matthew

Has anyone seen a review of top cash back credit cards recently? With Blue Amex dropping its top rebate amount and Chase Freedom moving to a rotating 3% reward (and eliminating the $200 to $250 bonus), I’ve been looking to make a move again. I converted my Blue Cash to a Blue Sky Card with 1.33% rebate, but I was curious what others are doing.

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avatar janice schmidt

I have had my Bank of America credit card for many years. I always pay off my balance and now see that I may have to pay a fee for that “privlege”. I have a small business so know how much you make on this end of your charges. I guarantee that I will stop using your credit card immediately if I find you are going through with this “plan”. I will not use my credit card for anything but will find one to use for online payment and may even have to use Paypal which at least does not require a fee for using it and paying it off. You are going to hear from all of your customers and will regret your decision.

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avatar Lily

I just closed my card with Bank of America after being a good customer for 11 years because they want to charge me an annual fee. When I talked to their customer service, I am told that the annual fee charge is in accordance with the new law. I am very disappointed with the way they treat their good customer. I think it is a joke when the bank offer new customer good deal such as no annual fee, 0% balance transfer, and so on and then make the long time customer pays. What a joke!

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avatar Sean Suwanto

I’m doing the same thing too, closing two of my B of A cards and closing my checking and savings account. Those executives just want more bonuses as the bonuses are tied to the profit. Greed! and that was the cause of the last recession. They could care less about tax payers who have bailed them out.

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avatar John

Personally I think this is bull@&$? Why shall a customer that is never late on any payments and never gone over their limit have to pay an annual fee. A lot of credit card companies will lose the majority of their customers….especially those who make payments on time and have never gone over. These companies are making a big mistake.

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avatar Louis Fristensky

I just received a letter from BoA today stating that I would be charged an annual fee of $59.

Do you know what I did?

I closed the account. I urge everyone to close their accounts. Let BoA feel the pain of losing us.

And I’ll just keep closing my accounts. I have excellent credit and income and will just open my accounts with those companies willing to not charge an annual fee. Otherwise, I’ll just pay for things from my liquid assets. No biggie.

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avatar Trent

I just got a letter from them saying they wanted to add a $58/year annual fee. They were already making about $400 a year in interest.

So, I opted out, and they closed my account. Now they’ll make $0 a year off me.

No wonder tax payers have to bail these guys out – they make decisions soley based on greed, even if it ends up costing them money in the end.

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avatar Paul

If a BoA changes its terms to somthing that is unacceptable to you, sever all ties with them. Businesses do not succeed by losing customers. There will be an initial windfall for BoA ,and the books will look good for them in the short term, because people unfortunate enough to be making payments to them will be saddled with an annual fee. Eventually, the bad will generated and the reduced volume of business will catch up with them.

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avatar Trent

Yep – only reason companies are able to screw over their customers is if we let them. Bank of America makes BILLIONS of dollars profit, hopefully they’ll eventually loose enough customers that a less-greedy company can step in and pick up their market share.

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avatar Kendra

I also received a letter stating I will be paying a $59 annual fee to my BOA card. I was disgusted since I have never been late, never went over my balance, but have always carried small balances so they have been making money off of me. I purchase large items and then usually pay them off over 6 months or so.
I went onto american express and got the blue card with no annual fee.
Screw you BOA, I am washing my hands. Closing the account as soon as I leave work.

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avatar Marni

Same thing here. After almost 20 years with BoA as a platinum cardholder…they are accessing my account with the 59.00 yearly fee. Transferring my small balance today and telling them to kiss my big ole a$$!

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avatar Magoo

I got the letter too – i clear my account every month. Just closed the account. Unfortunately it was all automated so I was unable to vent at Customer Service and explain how I will now never, ever, go anywhere near BoA even if they were the last bank on earth.

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avatar Jessica

Just closed my account too. This is ridiculous. Like some of you said, I’ve been a customer of BOA for 8 years and I got a letter where they want me to say a $59 annual fee. Why would anyone accept these annual fees? The sad thing is to keep a good FICO score it is nice to have accounts with longevity, however I just refuse to be taken advantage of.

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avatar lynn

HOORAY for all of you that choose to stop doing business with B.O.A. Unfortunately they’ll keep the card bearers [myself included] that have less then perfect credit. I am sick about this 59$ chg. but due to the economy & unforeseen difficulties after 40yrs of having perfect credit, It has all been ruined within a year.
Even though I have never missed or been late for a pymt, my credit line went from 15,000. to $500.00 because of credit scores, with this in mind I am afraid of not getting another card so aa much as I would like to tell BOA where they can shove it. I’m stuck i have to eat it !!!!!!!!!!!!!

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avatar Jim

I recieved the letter and have a high FICO score, no late payments and $60,000 credit line. Spent more than $1M on that card since 2000. I called BoA and they did not relent. Obviously moving to another bank. Not sure why they are willing to lose the volume/merchant fees. Sure, i have a rewards card under an affinity program so they are paying out 1-point-something percent to me and the charity, but they are still making a profit on my account.

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avatar Brian

Is this a loophole in the credit card reforms? I just received notice that Bank of America is going to be adding a $59 annual fee to a card that I have had for 15 years wit no annual fee. It seems that we would be protected from this through the reform act. Are these new fees legal or is there a way to fight them short of cancelling the card? Thanks for any insight or information.

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avatar Cheyenne

Not sure of all the legal wording. For the most part, looks legal just not ethical. I will tell you that I recieved the same letter yesterday, and they have already posted the fee on my account. Called them, they said if I close the account by my next statement, the fee will be taken off. This is my plan to do. I would call them yourself and put in your two cents and see if they tell you the same thing. Here is the crazy part, they tell me that they have assigned the annoual fee because my balance is kept at the same level, yet in the statements above, people are saying they pay their balances off and still have been assessed the fee. I am switching cards. I used to bank with them too and they did the same thing by assessing brand new fees. Not a good company to work with. Don’t trust them one bit!

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avatar Jim

Got the letter. Called and emailed questioning the fee since I was a major spender on the card (credit line over $50K) — but, I never paid any late fees or interest. The two calls and one email that threatened to move my card (and my wife’s) did not help. They told me they had to make money on their accounts (implying that large volume cards that never pay a fee = unprofitable…which seems odd given the bank’s share of the 2% or so merchant fee seems like a lot over a $100K/year spend).

So I researched my options and opened a Chase Freedom card. I moved my auto pays over to the Chase card. I then called BoA to confirm my deadline to cancel card (I was worried about timing with cashing out last of my worldpoints, etc.) — guess what, they have now decided to waive the fee!! I told them it was too late (but I did not cancel the card since I may need the high credit limit). I had to do same thing with the wife’s card (I actually planned to pay the fee since I wanted at least card with the large credit limit) – they waived the fee on that one too. Basically, I had to be on the phone to cancel before they would back down.

Just thought I would share. I am not the type to chase sign up bonuses or carry multiple cards so I hope Chase works out.

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