Don't Be a Lab Rat

Amid mixed economic signals this month, banks have kept annual percentage rates on their credit card products unchanged this week, leaving the national average APR on new credit card offers steady at 12.28 percent, according to CreditCards.com

However, recently banks have indicated their desire to “experiment” with changes to the terms and conditions for their card products – ahead of the new regulations on the not-so-distant horizon. Translation: you better be reading the fine print material in your mailbox.

Annual fees for credit cards are a rarity today, but more cardholders may soon have to decide between paying them or forfeiting their cards. Bank of America this month said it is "testing" annual fees of $29 to $99 on select customers starting next year. Customers were chosen based on "risk and profitability," but the company has not explained how it decided who charged $29, versus $99, or anything else in between.

Citigroup also notified a "small number" of customers in August that they'd be charged new annual fees.

These “experiments” come as the credit card industry searches for ways to make up the revenue it stands to lose as a result of new regulations. As part of the sweeping new reforms that go into effect in February, banks will be limited in how and when they can hike interest rates and fees.

This has left card issuers to examine their portfolios for accounts that aren't very profitable - or so they claim. For example, the type of account most sited is those cardholders who never carries a balance -- and never pays late fees or financing costs.

However, the interchange fees from the transactions should at least account for the cost to carry the account on the books, so I’m not convinced that these accounts are unprofitable – translation – that they lose money. They just don’t make as much money as those accounts that carry balances.

I’m seeing stories of folks who get these notifications who say, “I’m just closing them out now.” If those closed accounts have high credit limits, that action negatively impacts your score – hence the point of an earlier post. Credit scoring needs to go – at least not be the deciding factor in lending anymore.

To be continued…..