New credit card fee is a windfall for Bank of America, unfair for customers

Sue Laman wasn’t just upset that Bank of America is slapping a $59 annual charge on her credit card account. She was upset that, with a balance she won’t be able to pay off anytime soon, she’s effectively powerless to do anything about this new fee.

Laman, 52, of Lomita is typical of millions of consumers who have had no choice but to run up staggering card balances as the economy has worked its way through an ugly recession. Short of a bankruptcy filing, they can’t walk away from their accounts until the debt is paid off.

In the meantime, many banks have been responding to changes in the regulatory environment -- including limits on late charges and overdraft fees -- with a host of new fees intended to keep the money flowing in.

“I feel like an indentured servant,” Laman told me. “But what can I do? I can’t refuse their annual fee. They know I have no choice except to pay.”

Bank of America recently notified about 5% of its cardholders that a $59 annual fee will be imposed beginning April 11.

The bank says the fee is to address such issues as payments being too low or balances too high. It also says in letters to some cardholders that the annual fee is a response to “a review of your banking relationships with us.”

Betty Riess, a Bank of America spokeswoman, said the annual fee is generally being imposed on “customers who would not qualify for a new account today.”

“They have a choice,” she added. “They can reject the fee and pay off their account.”

Not really, responded Laman. She said she’s carrying about $30,000 in credit card debt as a result of medical bills and helping support family members during the economic downturn.

It will likely be years before Laman can pay that off. Yet she said she’s never missed a monthly payment and has a credit score of more than 700, which places her among the more creditworthy consumers out there. “I have a pristine credit history,” Laman said.

What makes Bank of America’s new fee all the more galling is that it appears to violate the spirit, if not the letter, of financial reforms signed into law by President Obama in 2009.

The Credit Card Accountability, Responsibility and Disclosure Act, known as the CARD Act, prohibits a rate increase on existing balances unless a cardholder is 60 days delinquent in making at least a minimum payment.

Introduction of an annual fee thus skirts the law by allowing a bank to milk extra revenue from an account without raising rates.

“It is equivalent to increasing interest rates and is yet another example of banks employing bait-and-switch tactics that place unfair financial burdens upon their customers,” said Odysseas Papadimitriou, chief executive of CardHub.com, a credit card comparison site.

Along with annual fees for credit cards, many banks are doing away with free checking and levying fees for previously free services, such as interacting with a teller or making a transaction by phone.

A recent study by Boston Consulting Group estimated that the CARD Act and other financial reforms could cost issuers up to $25 billion in lost revenue as the banking industry ends what lawmakers termed abusive business practices.

The consulting group said card issuers are responding with higher fees and reduced rewards.

My feeling is that after-the-fact fees aren’t fair. If, as Bank of America says, the $59 fee is being applied to cardholders who wouldn’t now qualify for accounts, then close their accounts and work out terms for them to pay down the balance.

People in Laman’s position may not like it, but if the bank truly believes they’re no longer creditworthy, cut them off.

Allowing the accounts to remain open with an annual fee seems like nothing more than a money grab from a captive market that, contrary to the bank’s assertions, has no choice but to accept Bank of America’s terms.

Laman already pays about 14% interest on her debt. That’s a hefty amount and is a reflection of the greater risk her balance represents to the bank. Does hitting her up for an additional $59 a year reduce that risk? No. Does it make Laman a more responsible money manager? No.

All it does is provide Bank of America with extra cash.

The bank has about 40 million credit card customers. That means as many as 2 million cardholders will be slapped with the $59 fee, which translates to a windfall of $118 million in annual revenue for Bank of America.

“We believe this is a fair price for the value that customers receive,” the bank’s Riess said of the fee.

Laman said she’ll pay the fee. But she definitely doesn’t think it’s fair.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com