It was always inevitable that the credit card companies would look to recoup the massive amounts they would lose in fees following the credit card reforms of February 2010. The Credit Card Accountability, Responsibility and Disclosure act means that the consumer has less chance of incurring charges which were previously hidden in the small print, so new charges are on the rise. Whilst previously targeting late payers with fees, or catching people out unawares by charging for payments received after a certain time on the due date, new fees are targeting long term customers with good credit.
Annual credit card fees are not a new idea and have typically hit those who used sub prime credit cards or those who were willing to pay a fee for extra benefits with their cards. However the annual fee tactic has now jumped from 20% of cards carrying fees, to 35%, as credit card companies try to establish just how much the customer is willing to pay to keep their credit card which was previously fee free.
Logic says that the exemplary customer who has a good credit score and uses the card wisely would simply cancel a card which suddenly introduced an annual fee, but it isn’t that simple. As the credit card companies know full well cancelling your credit card can have a negative effect on your credit score, especially if it is one you have held for a while. Keeping a card for a number of years ups your score which could nose dive if you cancel it. Also if you look to replace the card with another one it can affect your score as you apply for new credit.
Of course there are other ways to hit the consumer and Chase have introduced the ‘use it or lose it’ tactic of threatening to cancel credit cards which are held but rarely used. Some people simply retain cards knowing that cancelling them will hit their credit score, but now they are expected to go out and use them, spending a decreed amount to avoid an annual fee.
Citibank have advised some of their customers that they will be charged a new annual fee of $60 which will be cancelled when spending on the card reaches $2400 annually. If you don’t fancy falling for this bullying tactic and cancel the card, once again it hits your credit score. If you comply then you give Citibank a mandate to proceed with this type of blackmail and before long you may have to spend $5000 to avoid a fee.
This is just the beginning of course as the industry will be watching closely to see if the introduction of fees on dormant cards and fees unless you spend a certain amount, turns customers away, of if they grudgingly stay. Challenging long term customer loyalties in this way may turn out to be self defeating if customers choose to walk away in protest, confident that their credit score can take the hit. The card issuers are relying on their loyal customers to either pay, or spend to avoid the hassle.