06/22/2010 - Thanks to a series of laws passed by Congress and rules imposed by the Federal Reserve, fees for using credit cards and bank accounts have begun to decline appreciably, which is a real boon to consumers. The key question is: Will banks find other ways to hit customers with new charges to make up for lost profits? Among the possibilities: Hefty increases in annual credit card fees or an end to free checking.
"Banks will certainly try to maintain profits," says Adam J. Levitin, associate professor of law at Georgetown University Law School. "There's potentially a whack-a-mole problem, where you limit one fee and they just shift it to another fee, or they create a new fee. But certain kinds of fees are subject to more competitive pressure than others, and it may be hard for banks to raise them."
The latest blow to bank profits came last week, when the Federal Reserve announced that it was limiting late fees on credit card payments to $25, effective Aug. 22. Most banks had been charging $39 for late payments. If they want to charge the higher rate, they'll have to submit proof to regulators that their expenses justify a charge greater than $25.
The ruling also prohibits banks from assessing penalties that are higher than the credit card violation. For example, if a customer goes $5 over his spending limit, the maximum charge the bank will be allowed is $5, up to a maximum of $25.
The Fed ruling follows the implementation of the Credit Card Act on Feb.22 this year. The law prohibits banks from arbitrarily raising rates on existing credit card balances.
Nick Bourke, director of the Safe Credit Cards Project at the Pew Charitable Trust in Washington, D.C., estimates that banks collect about $10 billion a year in credit card penalties. With the new rules, those fees will be reduced by about a third.
Bourke estimates that between Jan. 1, 2009 and Feb. 22 this year, banks raised rates on about one-quarter of all existing cards, affecting millions of customers. The new rules require banks to review those increases and possibly reverse them if the reasons for raising rates are no longer justified.
"I think that based on our analysis of the law and regulations, there has been a lot more transparency introduced into the credit card market, and we're not seeing a big shift into new types of tricky fees and hidden charges," Bourke says.
Read the full article, As Some Banking Fees Fall for Consumers, Banks Will Raise New Fees on the Daily Finance Web site.
Pew is no longer active in this line of work, but for more information visit the Safe Credit Cards Project on PewHealth.org.