Personal Finance


December 4, 2009


Card firms add inactivity fees to slow default losses

Amy Schiffman has had a Fifth Third Bancorp credit card for eight years to guard against unexpected overdrafts on her checking account. Now the bank wants to charge her $19 for not using it.

“If you’re not thinking about the card, you might forget to pay the fee, and then you’ll be facing another late fee on top of it,” said Schiffman, 26, a Web designer in Lansing, Mich.

Credit card issuers, facing the highest level of delinquencies since April, according to Moody’s Investors Service, are reviving inactivity charges and reworking other fees in an effort to stem declining revenue.

Fifth Third, based in Cincinnati, added the fee for the majority of its cards in June, in part to offset increasing servicing costs, said spokeswoman Stephanie Honan. “We want to encourage active use and management of the accounts,” Honan said.

Inactivity fees have been used before, said Linda Sherry, director of national priorities with Consumer Action in Washington, who conducts the group’s annual survey of credit- card fees. Often they’ve been waived if the consumer used the card periodically, Sherry said.

“If you’re keeping the card in a drawer because of the safety it provides, use it a few times in a year,” Sherry said.

Many consumers are trying to manage debt, which was $842.6 billion as of Nov. 18, down 1.7 percent from a year ago, by paying off credit cards and then not using them. They refrain from canceling them because that may hurt their credit scores, because their ratio of debt to available credit would go up, said Nick Bourke, manager of the safe credit-card project at the Pew Charitable Trusts in Washington. The so-called utilization rate helps determine a credit score.

“If you’re trying to get out of debt, it’s a real problem,” Bourke said. If consumers use the cards, they add to their balances. If they don’t use the cards, they face a fee, he said.

Fifth Third, Ohio’s largest lender, is the 16th-largest issuer of U.S. credit and debit cards, according to the Nilson Report, an industry newsletter based in Carpinteria, Calif. Larger card lenders are also testing fees for customers who don’t use the cards enough.

Citigroup Inc. varies the interest rate it charges customers based on how often they use their cards, according to letters the company sent out in November to cardholders. Customers get back 10 percent of their total interest each month if they exceed a set amount of purchases.

The amount of spending needed to qualify for the rebate depends on their payment history with the bank, the letters said. A customer with a $35 monthly finance charge may see a $3.50 credit in the same month’s bill. Customers can opt out, paying off existing balances under current interest rates until the card expires. They also may get lower rates if they agree to transfer other card balances to Citigroup, according to the letters.

“These actions are necessary given the doubling of credit-card losses across the industry,” said Samuel Wang, vice president of public affairs at New York-based Citigroup. “Nearly all of our customers now have the opportunity to earn back a portion of the increase each month. We want to reward our customers for doing more business with Citi.”

Bank of America Corp. is looking at annual fees ranging from $29 to $99. The charges were part of a change in terms for fewer than one-half of one percent of all Bank of America’s cards, said Anne Pace, a spokeswoman for the Charlotte, N.C.-based bank. It’s a test, and the company hasn’t made any decisions about the wider use of annual fees, she said.

“We’re trying to get a better understanding on the value customers place on their cards,” Pace said. “The fee is based on the type of card and the benefit it provides to the customers.”

Bank of America, JPMorgan Chase & Co., the biggest U.S. credit-card lender, Capital One Financial Corp., the third-largest issuer of Visa Inc. cards, and Discover Financial Services don’t have inactivity fees.

Federal Reserve rules announced in July to implement credit-card consumer protections would stop inactivity fees on accounts that customers cancel and pay off when they reject a rate increase, Bourke said. Inactivity fees would probably be allowed for customers who simply stop using a card and pay down the balance without actually closing the account, Bourke said.

Delinquencies on loans at least 30 days overdue, considered a sign of future defaults, rose to 6.12 percent in October from 5.97 percent in September, Moody’s Investors Service said in a Nov. 20 report, the highest level since April.

New fees are often matched by other banks after judging public reaction, said Bill Hardekopf, publisher of, a Web site that allows consumers to compare terms on more than 1,000 U.S. cards.

Fees have proliferated since President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act May 22, Hardekopf said, which sets limits on rates and other terms for credit cards.

“These are for-profit companies,” Hardekopf said. “They want to make as much money as possible. This new law has tied their hands, in their view.”

Schiffman, the Web designer, avoided the charge by using her card. “It didn’t seem fair,” she said. “I was being a good customer by not overdrawing the account.”

Inactivity fees haven’t been widespread because of consumer resistance, said Gerri Detweiler, a personal-finance expert with, a consumer-education Web site.

“This is a different environment,” Detweiler said. “Companies don’t seem to care if they lose customers. It could stick this time.”


December 4, 2009