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
Yesterday, Bank of America and J.P. Morgan Chase Bank announced they were changing their policies to allow customers to opt out of overdraft protection. Wells Fargo decided to follow in their footsteps late yesterday, announcing a number of changes at this bank. The following changes also apply to Wachovia, the bank that was acquired by Wells Fargo several months ago.
Wells Fargo is eliminating overdraft fees if the account is overdrawn by less than $5 and are limiting overdrafts to only four per day. Customers will be allowed to opt out of overdraft protection, so they don’t incur fees but transactions that would bring their accounts below zero will be declined.
All of these changes are improvements, although I see no reason for a bank to charge more than one fee per day. Regardless of what a bank charges, customers have the responsibility to monitor their own accounts. Accidents and emergencies happen, but in the end we should all be aware of what we have in the bank. The best defense against excessive bank fees is to pay attention and give the banks no reason to charge them. Here are some tips for avoiding overdraft fees.
Wells Fargo Announces Changes to Overdraft Practices, September 23, 2009
Overdraft fees are nothing to sneeze at. Having not always been a model bank customer, I know how it feels like an unfair punishment to have roughly $30 taken away when my account is already negative. I’ve also worked for Bank of America, and I can see why they use a dis-incentive to drive away bad customers.
I was a pretty generous Customer Service Rep., and would refund overdraft fees to as many customers as I could. But sometimes there’d be an awkward conversation when a customer would ask, “How can I stop getting these overdraft fees in the future?”
Naturally, I’d go into my speech about keeping a balanced checkbook (or something similar) with you, and how the “available balance” you’d get from an ATM or the phone service was often a lie. Some customers persisted (as well they should) and felt like there should be a way to not be allowed to go negative. It was tricky, and unlikely, but not always impossible to get your branch manager to agree to put that kind of hold on your account.
But now, any Bank of America customer can opt-out of overdrafting. If you’re down to $2.12 in your checking account, and you go to buy a Frappucino, you’ll have your card rejected at the register.
In addition, Bank of America also decided it won’t impose an overdraft fee if your account is above -$10, unless you don’t fix it within five days. And the limit of overdraft fees you can get in one day is now four, instead of ten.
JP Morgan Chase also announced that they’ll be changing their policies:
Starting in the first quarter of 2010, the bank will make overdraft protection opt-in for all customers, post transactions to accounts as they occur, and eliminate fees when accounts are overdrawn by $5 or less. It will also reduce the maximum number of fees per day to three from six.
Bank Of America Backpedals On Overdraft Fees, Huffington Post, Sep. 22, 2009
Bank of America 1, Retirees 0.
In 2004, Bank of America was ordered to pay $284 million to 1 million customers in a settlement. The bank was charged with using funds from social security or other government benefits in customers’ accounts to cover bounced check fees. The California Supreme Court overturned this ruling yesterday.
Federal law indicates that creditors are not permitted to seize government benefits to pay for debt. The bank’s argument is that fees charged to a bank account are not debt. The fees are debits like any other withdrawals and government checks are credits like any other deposits. According to the law in California, bank accounts tally debits and credits.
The balance of a savings or checking account is a running tally. If a bank charges a fee, the balance is reduced by the amount of a fee, even if the reduction forces the balance to dip below zero. The next deposit would increase that balance, regardless of the source of the deposit, government or otherwise. How would a bank account logistically not apply any deposit to offset a fee?
Kathy Chu and Taylor McGraw, USA Today, June 4, 2009
While working at Bank of America, I learned a magic phrase that I hadn’t heard before: “verify funds.”
When someone writes you a check (I know, it’s 2009, but even I use them sometimes for plumbers or whatnot), you may feel uncomfortable about whether the check author has enough money to cover it. If you’ve ever deposited a “funny” check, particularly for a large amount, you know how painful it can be to have the money credited and then later taken back out. Fortunately, sometimes you can find out in advance if the check is good.
In general, you call the bank that houses the check author’s account, provide them the check information and they’ll tell you either yes or no. Of course, even if they say yes, that information is only foolproof for about the next 3 seconds, since any number of things could happen before you deposit or cash the check, but it’s better than not knowing.
Ironically, it’s more useful when they tell you, “No, funds aren’t currently available to cover that check,” because now you have options.
- You can keep trying every day until funds are available
- You can contact the check author and work out a different method of payment
- You can decide never to do business with that person again
I did a little research for us all and called the top 6 national banks (some of them several times) and asked whether they would verify funds for a third party (the recipient of the check). Here are the results:
| Name of Bank |
Over the phone? |
In person? |
| Bank of America |
No |
Yes |
| Chase |
Yes |
Yes |
| Wells Fargo |
Yes |
Yes |
| Citibank |
No |
Yes |
| PNC Bank |
Yes (for a $5 fee)
1-900-988-4762 |
No (but every other bank said Yes, so…) |
| U.S. Bank |
Yes |
Yes |
If you’ve had an experience lately that doesn’t match the table, please leave a comment and I can revisit my findings.
Meredith Whitney, an analyst with Oppenheimer & Co. is predicting that credit card issuers may cut as much as $2 trillion worth of available credit in the near future, representing about 45% of today’s levels.
The Motley Fool has decided to call this The Death of Credit Cards, but we’ll be co-existing with them for as long as people want to borrow from their future selves. (That, or you’re clever like my man Flexo, who only uses them for the rewards. I’m not that clever, but I’m working on it.)
Here’s the crux of the story:
Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.
We’ve already seen Citigroup raising rates for nearly all customers across the board (even though the national average credit card interest rate continues to decline).
Citigroup said it would be raising rates 2 to 3 percent, but from the comments we received on the story a couple of weeks ago, the average seemed to be about 7 to 10 percent. And this seemed to be happening even to people with good FICO scores and payment histories.
Now Citigroup, as well as Bank of America and JPMorgan Chase, are considering closing accounts, as well as lowering credit limits. Given Citigroup’s recent history, what are the chances that these actions will only be taken on customers with poor histories? If you’ve delicately balanced your available credit in order to keep a high FICO score, this could have serious repercussions.
If you own a credit card from Bank of America, the bank is offering you a $75 bonus for opening a checking account with a minimum deposit of $25 before November 30. The bonus is available for Bank of America’s “MyAccess” checking account.
To qualify for the bonus, visit Bank of America’s website, select the option to open an account, select your state, and select the free MyAccess checking account. After confirming whether you are a current customer, you will be presented with the opportunity to enter an offer code. Use CH75EM1 to qualify for the $75 bonus.
If you have experience with Bank of America’s banking services, please share any stories. I do not have a bank account there nor do I have a Bank of America credit card.
The other day, I received a tax form (1099-INT, income from interest) in the mail. The form came from Bank of America. I was not aware of having an interest-earning account at Bank of America. My only experience with this particular financial company was when a Wachovia credit card I have (unused but held to avoid fees on my checking account) was transferred to Bank of America after Wachovia decided to get out of that business.
This credit card could not have been the source of the unknown interest, so I called the customer service phone number conveniently located on the tax form. Someone from Bank of America answered right away. After providing my account number, the customer service representative quickly had an answer for me, even before I asked the question.
The interest reported on this 1099 apparently comes from the security deposit I placed with my landlord company when I moved in last year. At first, I was disappointed that I would have to pay tax on this interest even though I have no access to the account. However, I added the interest information to my tax return in progress at TaxAct, and it resulted in no change in my tax due. Perhaps it’s just not a significant enough amount.
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