As the government cuts off (or limits) some revenue streams for credit card companies, they’re going to try to pick up the slack somewhere else:

Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected. Citigroup, meanwhile, has started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don’t use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.

These fees are the credit card industry’s response to credit card legislation that will, among other things, restrict credit card issuers’ ability to raise interest rates on existing balances. Credit card issuers are looking for ways to raise income before the new rules take effect in February. During the first quarter, 27% of credit card offers included annual fees, up from 18% a year earlier, according to Synovate Mail Monitor, a credit card direct-mail tracking service.

I’ve seen this argument made by some as a reason that it’s pointless to try to prevent corporations from making money because either (a) they’ll make it up elsewhere or (b) they’ll go out of business, denying everyone of their services.

Personally, I couldn’t be bothered less by it. Oh, make no mistake, I won’t take annual fees lying down. In fact, right now I think I would take the hit on my credit score before I would submit to paying $50 for a privilege of a credit card. And I’m relatively confident that I will be able to find some card issuer somewhere that won’t charge me an annual fee. Perhaps my longevity of service with Discover or my all-in relationship with Wells Fargo will get me a pass. Or maybe not. In any case, I suspect that to the extent that these fees become mandatory you’re going to see a lot of people shifting over exclusively to debit cards. And on credit scores, I think it’s easier for banks to claim in the current environment that people who don’t own credit cards are risky, but in an environment where everyone has to pay for the privilege if they have the audacity to pay their bills on time, it’ll look a lot more like what it is: a punishment for people that decline to be taken advantage of.

But the main reason I couldn’t care less is that if absent the backdoor profits they receive from fees they need $50 a month for maintenance on a credit card account, then that’s what they should charge. Then people can make the decision for themselves to sign up or not sign up. Instead, in the current model, people sign up thinking that it’s not going to cost them anything (or much) and then end up getting charged at the back end when all does not go according to plan.

I thought about all this when I got a letter from Discover that they’re raising my interest rates on an account that I have not been delinquent on. Along similar lines, I’ve been dealing with my health insurance company. I had a recent appointment and some blood work done and I got a bill back for $200 when my insurance company apparently decided that all but $15 was not covered.

In the greater scheme of things, I don’t care if it was not covered. It was worth $200 to me and it needed to be done. What I hate is that when I go to the doctor, I never have any idea how much it’s going to cost me in the end. I don’t know of any other industry with greater opacity. My history with health insurance has actually been less contentious than dental insurance, but in neither case can I simply ask how much something costs. This isn’t because of the different rates they charge for the insured and uninsured so much as it is because the subject of cost is a conversation (in the form of billing codes and contract bylaws) between your provider and insurance that you are not a part of.

Defenders of insurance companies say that it has to be this complicated to keep costs down. Leaving aside the immense costs of billing and compliance, the fact that it is so complicated is a cost in and of itself. First, it’s a literal cost insofar as if people knew that they were going to end up paying for certain things they wouldn’t go through with them (I am not sorry I got the blood work done, but if I’d known the bill ahead of time I might have quietly declined). But there’s also the cost of the uncertainty of the protracted negotiations between your provider and insurance company and not knowing what the verdict is going to be. But even discounting all of these things, there comes a point where if transparency comes with its own costs, it’s a price worth paying.


Category: Market

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