On February 22, 2010, the Credit Card Accountability, Responsibility, and Disclosure Act, better known as CARD, will go into effect and consumers can start breathing a little easier as some of the worst abuses in the industry are curtailed. Don’t start celebrating just yet, though. We predict that issuers are going to get creative seeking profits elsewhere, so it’s important to take the time to understand what changes may be coming in a few weeks — and how to protect yourself now.
Below find our predictions for how card issuers will find new profits in the days after the legislation takes effect, and also three suggestions for staying ahead.
1. More cards with annual fees
Currently, only about 20% of credit cards in the United States charge an annual fee. Expect that percentage to rise after CARD goes into effect as it’s the easiest way for issuers to recoup their losses. Bank of America was way ahead of the game in this respect, as it announced in October 2009 that a small percentage of cardholders (the ones they have trouble making money on, i.e. those with good credit) can expect to see annual fees ranging from $29 to $99 starting in, you guessed it, February 2010.Chase has also started experimenting with annual fee cards, but unlike Bank of America, will also offer more rewards. For instance, the popular Chase Sapphire card, which has no annual fee, was reincarnated as the new Chase Sapphire Preferred card. The Sapphire Preferred charges an $85 annual fee but also provides for a better rewards points and miles system, including a 7% annual points dividend that helps you increase your points. How do you know which is better for you? That’s the question that drives our company.
Safeguard yourself now by staying on top of the ever-changing rates, rewards, and payment policies. BillShrink helps you find the best credit card for your lifestyle by calculating the total cost of ownership for each card, including fees and rewards. Remember, don’t always judge a card by its fee: that $79 annual fee could save you thousands in interest rates if you happen to carry a large existing balance.
2. The rise of sneaky fees
Customers can expect to see a hefty rise in fees like cash advance and foreign transaction fees, as well as newly-invented fees. For instance, Fifth Third Bank has introduced a $19 “inactivity fee” on credit cards that have not been used in a year. In other words, if you had charged a random ten dollars on the card once in the whole year, you would have saved $9. Citi has also started something called the “reinstatement fee,” which requires you fork over money to access your own points that have been “made unavailable” because of a late payment. (Even more proof that late payments cause all sorts of unnecessary headaches.) While the reinstatement fee is currently $0, it’s a very good bet that number will go up after the CARD Act goes into effect.
Safeguard yourself now by scaling down the number of cards in your wallet. BillShrink CEO Peter Pham recommends that users “consolidate your debt into one or two cards that you use on a regular basis.” This way you’ll be able to avoid an inactivity fee and be better able to keep track of payments, fees, and all the other complicated fine print. Also, keep an eye out for any “processing fees” tacked onto your bill, which may be charges for paper statements, customer service, and more. While the CARD Act eliminated fees for paying your bill over the phone, it doesn’t mean other “convenience” fees couldn’t spring up in its place.
3. Prediction: Balance transfer fees going up
If you don’t like the terms you get with your current credit card, an excellent way out is to transfer your existing balance elsewhere. However, the cost of doing so is rapidly rising. A year ago, balance transfer fees hovered at 3%. That number has inched up and up. Bank of America charges a 4% balance transfer fee on the Asiana card and Alaska Airlines Visa Signature card. Chase charges a current balance transfer fee of 5% on the Chase Freedom Card. While 5% may seem exorbitant now, there’s no telling where these rates are heading in the future.
Safeguard yourself now by taking advantage of the current low cost of balance transfer. If you are carrying a balance and paying a hefty amount on interest, the time to shop around is now.
At the end of the day, no one can make perfect predictions for what the credit card industry will look like a year from now. Even the most diligent of cardholders may be caught unaware, which is why it is more important than ever to use trusted tools that consistently protect you. BillShrink monitors all changes in the credit card marketplace and alerts you when your current credit card starts giving you the shaft.