A credit card industry insider recently made an interesting argument that it is.
If you remember, Bank of America pledged on Oct. 6 to stop raising interest rates, then turned around and announced it would start adding annual fees to some customer accounts next year (although from the mail I get, some customers have already been told their accounts will be subject to the fees).
Odysseas Papadimitriou, formerly of Capital One and now CEO of CardHub.com, argued at WalletBlog.com that under laws regulating credit cards, fees and interest rates are considered essentially the same thing. (You can trace this to the 1996 Supreme Court case Smiley v. Citibank.) He calls Bank of America’s actions a marketing bait and switch, and says if the bank proceeds with its plan to implement annual fees it will in effect be raising the costs on existing balances–something that’s prohibited under the credit card reform act now scheduled to go into effect next year.
Papadimitriou points to Chase’s aborted plans to add “inactivity” fees to low-rate balance transfer accounts as another example of promise breaking.
What I’m reminded of, though, is all the times in the past when issuers tried to foist stupid fees on its customers–inactivity fees and fees for not carrying a balance being two of the most egregious examples from the 1990s.
The savviest users always bolted and issuers had to back down. The fees that remained–late fees and overlimit fees, in particular–were mostly paid by the less-savvy consumers.
An issuer that drives away all its smart, credit-worthy customers won’t be in business for long. Previous generations of credit card executives had to learn this lesson the hard way. Looks like the current generation will, too.