Credit score issues raised as consumers seek to avoid new fees

10.18.09
By Stan Monfort

For much of this year, the Credit Card Accountability Responsibility and Disclosure Act has been making news, raising the hope of debt-straddled consumers while generating consternation among some lenders.

With the provisions set to take effect in several months, some card companies have made news and angered members of Congress by taking last minute steps to pad their profit margins with higher interest rates and various fees.

A recent Associated Press report spoke with one consumer who felt he was being held "hostage" by his card company because of the annual fee they imposed on his account. If he cancels, the report noted, his credit score potentially suffers because of a formula that rewards people for keeping their oldest accounts open.

The report cited a recent decision by Bank of America, a leading credit card company, to enact fees of $29 to $99 for a number of its cardholders. The wire service also cited a trend in the industry where lenders are trying to identify a "line in the sand" involving how much of an annual fee consumers will tolerate before they take their business elsewhere.

While the recent development from Bank of America made news, other lenders have engaged in some similar methods in recent months, generally giving consumers the option to either accept less favorable terms - generally higher rates and fees - or close their accounts down.

Another thing to watch for in the coming months will involve how regulators choose to deal with the fees that financial institutions impose on debit card customers - especially since debit cards have been steadily replacing credit cards as the payment method of choice for consumers.

One common proposal involves giving consumers a way to opt out of a transaction that could result in a fee of $30 or more, while other points of contention involve fees that add up quickly for multiple card transactions.

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Consumers face tough choices when it comes to credit cards in the current economy.