Credit Card Annual Fees - A Comeback?

Back when banks and other credit card companies were eager to sign up card holders, one of the lures was a no-annual-fee rewards card. When federal legislation crimped the card issuers’ revenue stream, consumer advocates predicted a return to annual fees. Although a full-scale resurgence of annual fees hasn’t happened yet, there are signs such fees may be making a comeback.

The first to announce an annual fee on some of its rewards cards was Bank of America, which will impose fees ranging from $29 to $99 a year on some rewards card accounts, starting in February. CitiGroup is also planning to impose annual fees on some cards starting next year. Although Bank of America refers to its fee as a “test” and says that fewer than 1% of its credit card accounts will be affected, many industry observers believe the move to be the beginning of a trend, as banks act to recover revenue lost as a result of new credit card rules.

The fees could present a double whammy for card holders since the only way to avoid them would be to opt out, which would effectively close the account. Consumer advocates point out that closing credit card accounts often lowers a card holder’s credit score, because it usually results in a higher debt-to-credit ratio, a prime factor in figuring the score. Closing the account would also wipe out any “good” credit history, like on-time payments, that goes with the account. The net effect of a lower credit score could be higher interest rates on mortgages and other loans.