Ask Liz Weston

photo credit: wickedboy_007

Last week BofA promised no more rate hikes between now and February, when the bulk of the credit card reform act’s changes take effect. But now the bank reveals it plans to impose annual fees of $29 to $99 on about 1% of its credit card accounts starting in February.

We can presume that BofA is testing to the waters to see how much its customers howl. If there’s not significant pushback, expect more accounts to be slapped with the fees.

If you have good credit scores (FICOs of 740+), you have plenty of options if your bank imposes an annual fee you don’t want to pay. You can threaten to take your business elsewhere, and the threat has some weight, since other issuers would love your business. If your issuer insists on imposing the fee, you can simply close your account. As long as you keep other cards open, the hit shouldn’t be too bad. If this is your oldest or highest-limit account, you make take a larger hit on your score. But again, the more accounts you have, the less one closure is likely to matter.

If you don’t have good scores, your options are more limited. Other issuers might not be as eager for your business and your scores could take a greater hit from a closure. Paying the fee might be the better option, at least until your scores improve.

For more on recent credit card changes, visit LowCards.com page “Credit card changes by issuer and date.“

The credit card industry has taken careful, deliberate aim, and shot itself in the foot.

Prior to the financial crisis, credit card issuers mostly picked on subprime borrowers. Recently, though, it seems no one is immune from issuers’ capriciousness. Even folks with the best credit, who paid on time and followed all the rules, are seeing inexplicable rate hikes, slashed credit lines and closed accounts.

Two of the banks that received the most bailout money, Bank of America and Citi, have been at the forefront of this retrenchment, yanking away billions in credit from their customers. Instead of using taxpayer money to lend more, they’re lending less, and understandably incurring customers’ ire.

Today, more people realize what has long been true: that credit card issuers can change virtually anything about your agreement with little notice and regardless of how good a customer you’ve been.

Yes, card issuers should be able to make a profit, but they also have a corporate responsibility to play fair, a responsiblity they’ve been ignoring for years. Double-cycle billing, universal default penalties, egregious fees and hidden “gotchas” in contracts aren’t legitimate ways to make a buck; they’re playing foul.

President Obama said as much when he summoned credit card executives to the White House Thursday, and made clear he supports legislation that would:

• restrict sudden rate increases
• rein in fees
• require clearer applications, notices and contract language
• put some teeth into enforcement against issuers who violate fair-play rules

The fate of bills like the Credit Cardholders Bill of Rights is in some doubt, however, since the banking lobby is so very powerful in Washington.

If you agree that credit card excesses need to be curbed, contact your lawmakers, particularly your U.S. Senators, who are facing particular pressure to water down any reforms. CLICK HERE for contact information for your state senators.

Dear Liz: I’ve had a Bank of America Visa card for years. My interest rate was lowered from 7.9% to 5.4% a few months ago, but I recently got a letter saying that if I did not agree to a 12% rate, I could “opt out” but no longer use the card. I never carry a balance but use the card extensively. It just seems unfair that they can do this. Can I report them to some agency?

Answer: Like other issuers, Bank of America has been raising interest rates across the board, but what’s mystifying is why you care. If you never carry a balance, you don’t pay interest, so the rate is irrelevant.

If you object to card issuers raising rates on principle, contact your congressional representatives, who are contemplating changes that would make it tougher for credit card companies to alter rates and terms.

Otherwise, simply accept the new rate and use the card as you always have.

Carrying a balance on your Bank of America credit card? You’re gonna pay for it.

In June, BofA customers with interest rates below 10% and carrying a balance will see their interest rate increase into double digits, reports LowCards.com, which covers the credit-card industry and tracks weekly card interest rates.

However, customers apparently may be able to “opt-out” of this increase if they call BofA and not use the card anymore. This is a trend that LowCards.com says it has seen at Citigroup, American Express and Chase.

“If you are an established customer, especially one with average credit, the issuers want to minimize their risk and have you pay off your balance. They are forcing the issue by increasing the interest rates,” LowCards.com writes.

CreditMattersBlog.com, which focuses on credit issues, says that this opt-out clause is a bit friendlier than other bank policies because it allows the consumer to keep their account open as long as the card isn’t used. (READ MORE HERE.)

Friendlier or not, the panel overseeing the federal banking bailout is looking into the lending practices of institutions that received the funds — after complaints about rising interest rates and fees, according to the Wall Street Journal. (READ ITS STORY HERE.)

Check out: My columns for more credit/debt strategies that could save you money!

• 6 steps to dumping toxic debt
• Ditch your bank for a credit union
• Decline my debit card, please
• 3 things you shouldn’t charge

I told you a couple of weeks ago about two readers who called Bank of America to ask for rate cuts, with dire results.

Today CreditMattersBlog.com wrote about a Bank of America customer named Ryan who called the issuer to arrange a 1% balance transfer and instead wound up having one account closed and his total credit limits slashed by $30,000.

The blogger’s advice:

“If you don’t absolutely have to, don’t get on the phone with card issuers. More and more, the end result is not positive.”

I’d have to agree, particularly if the issuer is BofA. This might be a good time to lie low. If all your credit accounts are at the bank, or any other single institution, consider opening a card at another issuer. Diversifying our credit has become as important as diversifying our investments.

Two of the banks that received the most bailout money, Citibank and Bank of America, have collectively slashed customers’ credit card limits by $45 billion, the Washington Post revealed today.

Mortgage originations also dropped sharply. Way to spread the wealth, guys.

I’m getting more questions from readers about lowered limits and frozen accounts than any other topic these days. Even if you don’t “need” the credit, you need to care, because lowered limits and closed accounts can hurt your FICO scores.

The good news: you can fight back,  as long as you have decent (720+) FICO scores. Read my MSN column “Thaw out your frozen credit” for techniques.