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The New Credit Card Law Fees Of 2010 Take Advantage Of Customers

By Erik Folgate

new credit card feesI’ve told you once and I’ll tell you again, playing with credit cards is like playing with snakes. The more you play with them, the more you have the chance of getting bitten. Everyone knew that the fees associated with credit cards were getting completely out of hand, and finally the government acknowledged the predatory fee structure of these cards. As a result, the government recently passed legislation that limited which fees credit card companies are allowed to charge and how much they’re allowed to charge.

Consumers are generally happy with the legislation since our country is addicted to credit cards. After all, the average consumer was still using credit cards even with the exorbitant fees and interest rates. But when the government stepped in to regulate what credit card companies could do, did you think the credit card companies would just lie down and admit defeat? No way!

I want to first highlight some of the fees that the government now regulates, and then discuss some of the creative, new fees that credit card companies have conjured up to combat the system and ultimately take a huge chunk out of your wallet:

Examples of Fees That Were Reduced

  • Late Fees: They were as high as $39, and now the max allowed today is $25. Also, companies must now give notice 21 days before payment is due instead of the old 14-day notice.
  • Over-Limit Fees: They were as high as $39, and now the max allowed today is $28.
  • Interest Rate Hikes: Interest rates can only be increased by giving 45 days notice instead of the old 14-day notice. Also, rates can only be increased after the first year and only for the following reasons: 1) customer made a late payment 2) promotional period ends 3) the card has a clearly stated variable rate.

These reductions are a huge hit for banks. Preliminary estimates are that these regulations would cause the industry to lose up to $5.5 billion in revenue this year. In addition to these reductions, there are some other advantages of the new credit card laws of 2010 that you should know about. Naturally, banks aren’t going to allow this loss of revenue to occur if they can help it. Instead of trying to support the new system and help out the consumer, these companies have created new credit card fees that aren’t regulated by the new credit card reform act.

Examples of New Fees:

  • Balance Transfer Fees: The common balance fee before the reform act was 3% with a $75 dollar cap; now the common fee is 5% with no cap.
  • Card Replacement Fee:  Yeah, you read that right. Credit card companies will charge you now if your card was lost or stolen. The fee ranges from $10 to $20
  • Annual Fees: The average annual fee for credit cards with points and reward programs continue to rise. Fees have risen roughly 65% and 20% at credit unions vs banks respectively.

And of course, credit card companies are raising the average interest rate on credit cards. In 2009, the average rate was 10.7% and in 2010 the average rate is 13.6%.

I know that a lot of you don’t understand my distaste toward credit card companies. For those of you who keep enough money aside in your checking account, charge everything, and pay off your balance in full every month, I applaud your discipline and the fact that you are not letting these credit card companies take advantage of you. But, the large majority of us do not have the discipline or sound financial situation to properly use credit cards without falling into excessive debt. And with all the new fees being created every day by credit card companies, even the most savvy credit card user might end up paying these fees at some point while a cardholder. And don’t forget, if you are already in a difficult financial situation, credit cards are not a magic solution as you try to get out of debt.

Before you take the plunge into your next credit card, be honest with yourself whether you can responsibly handle a credit card without falling victim to the temptations of “free money.” If you are unsure about your ability to be smart with your credit card, stick with cash.

What are your thoughts on credit cards in general and all the new fees being created every day?

(photo credit: vipez)

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://www.debt-tips.com/blog Kris

    On the one hand I realize credit cards are just a part of the banks business, so they need to make money. On the other hand, they seem to be run the way drug dealers and mobs run their businesses – give you a little to get you hooked, then give you “the business”.

  • Karmella

    I hate, hate, hate Bank of America. They charged me a foreign transaction fee for a purchase that took place entirely in the US and was shipped from the US – because the company has an office in Canada. And when I called to ask about the the rep refused to explain it to me and was all around nasty. And this is after they slapped an annual fee on the card!

    I’ll say thought that AmEx and Discover seem to be pretty fair overall. I pay off every month and I haven’t noticed any extra fees – yet.

    Right now, for me credit cards are the easiest way to reliably track my spending, and to get a few rewards on top of it. At some point they may price me out of the market, but at the moment I’m happy enough – although canceling Bank of America…

    • http://www.erikfolgate.com Erik Folgate

      You’ll probably drop that method the first time that you’re a day late on putting your balance back to $0 and they slap that late fee on you :)

  • http://www.castocreationsjewelry.blogspot.com megscole64

    I think that credit card companies are legal private businesses who enter into contractual arrangements with willing consumers. If those consumers do not have the discipline to not overspend then they should not have credit cards. The government should keep their nose out of private business practices, unless those practices truly cross the line into fraud or illegality (which I do not believe previous actions of banks/cc companies did before the new law). Of course they’re going to find ways to make up that revenue. They are in business to make money. Duh.

    I have two credit cards. One for Costco and the other for everything else. We do our very best to pay each of them off every single month and for the last year or so we’ve done that. Yes, it is easy to overspend if we aren’t paying attention. But that isn’t the bank’s fault. It’s ours. If I’m late paying I rarely call to get the fee waved because it’s MY fault for not paying closer attention.

    I’m kind of tired of people wanting the government to “save” them from themselves. I’d prefer the government left me alone and let me make my own mistakes and pull myself out of those mistakes as needed. We were in quite a bit of credit card debt not too many years ago and were able to find our way out. It is not impossible.

    If you have a crappy credit card…get a new one. I LOVE our Visa. It’s with a credit union and has the most amazing rewards. We’ve gotten hundreds upon hundreds of dollars in gift cards over the last two years. And have yet to pay a late fee or more than a few dollars in interest. Nor is their an annual fee.

    • http://www.erikfolgate.com Erik Folgate

      Hey Megs, These are all great points, thanks for your input! I definitely understand that these banks are in business to make a profit, and I agree that if you choose to use a credit card then there should be consequences for using it improperly such as paying interest, late fees, and over-the-limit fees.

      My problem with credit card companies has been how unethical they have been in the past with their fees and not properly disclosing the hundreds of caveats and disclosures regarding fees. These new fees are the same deal. They’ll throw it in their 4 point font terms and conditions and assume that you read it.

      In my opinion, and it’s an opinion not in the majority, is that we don’t need credit cards. I don’t consider them a “tool” for building wealth. You end up spending more on them than you do making money from them, even with all of the reward points you can handle.

      I do keep one for traveling, because even though most to all hotels, airlines, and rental car companies now take debit cards, they make it a pain by holding a deposit that doesn’t get credited back for a week or two, so I find it easier to book that stuff on a credit card and pay it off immediately.

  • http://www.castocreationsjewelry.blogspot.com megscole64

    Oh…I should mention that I do not work for a bank or have any vested interest in any sort of credit card company. :)

  • http://change-is-possible.net Heather

    We have gotten away from using credit cards and our life is much happier. We were always a pay-in-full kind of couple, but we’ve gone to cash and don’t have surprises any more, which is nice. We’ll use the card for things like car repairs or buying anything online (and pay it off as usual), but it is nice just to use cash for everything else.

  • Russell Lee

    This question is kind of off-topic but it is important to me. There is a kind of foreign transaction that I’m involved with and I’m being told that I need a “zero-balance” credit card for them to transfer an amount of money into. I am not financially interested / knowledgeable in credit cards and have never heard of this, and I am wondering what is really going on with this kind of transaction. I have always thought that credit cards were strictly for loaning money, not for receiving money. Could someone please enlighten me? If this is a bonafide transaction, where does one find “zero-balance” credit cards because my bank doesn’t have them? Thank you in advance!

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