In the aftermath of new regulations that cracked down on industry revenue practices, credit card companies are looking for new sources of revenue. If you’re not careful, you may get hit with a broad array of old and new fees from currency conversion fees to rewards-based fees.
And it’s not over yet. Credit card companies are still hunting for ways to increase their credit card fee revenues, says Duncan Douglass, a partner with law firm Alston & Bird LLP who specializes in the credit card industry.
“There are a lot of things going on from the lowering of credit limits to switching from fixed to variable interest rates that are going that rub consumers the wrong way. These are adjustments from credit card issuers that are being made to reflect the new market reality,” he adds. “And everything hasn’t shaken out yet. I think it’ll be interesting to see a year from now what the fee landscape looks like, because the industry is continuing to adjust to the Credit CARD Act and Federal Reserve rules.”
Here are a half-dozen obscure fees and hidden charges to watch out for:
- Reward redemption fees
- Foreign transaction fees
- Reward recovery fees
- Activity fees
- Payment protection fees
- Paper statement fees
1. Reward redemption fees
Just because something is a reward doesn’t mean it’s completely free. This is most frequently associated with redeeming airline miles. Some airlines allow you to avoid the fee by booking your trip online and only charge you for redeeming miles over the phone or at a ticket counter. Another way to avoid these fees is if you have a ton of frequent flier miles with a particular airline and get a fee waiver as a perk.
- What do banks say they’re for? To pay administrative charges associated with purchasing or changing airline reservations.
- What do they cost? $20 to $50, depending on the carrier.
- How common are they? Very common.
2. Foreign transaction fees
A fee charged to conduct transactions that involve a foreign bank if you buy a good or service from a company in a foreign country or use your card to buy a good or service in a foreign country. These used to be called currency conversion fees because card issuers said they imposed them to cover the cost of converting a foreign transaction into U.S. dollars, but now they’re called foreign transaction fees because they’re charged even for deals made entirely in dollars. You don’t even need to travel abroad to get whacked: All that has to happen is that a foreign bank is somehow involved. Before she even left home, Karen Mallia, an assistant professor of advertising at the University of South Carolina, was shocked to find a $25.36 currency transaction fee for an $845.52 London conference registration and lodging fee.
- What do banks say they are for? To pay for the convenience of having an international network.
- What do they cost? 1 to 3 percent of the charge, depending on the issuer.
- How common are they? Very. Visa and Mastercard both assess the fee, but they charge your bank. Your bank may or may not pass along the fee; most do, and most also add on a “me, too” fee of their own. If you are going abroad or buying goods or services abroad, it makes sense to check with the issuer of your credit cards to see which one offers the lowest fees, says Douglass.
3. Reward recovery fees
What credit card companies give, they can take away. American Express charges customers a fee to reinstate reward points if they make a late payment. “Besides a late fee, some credit card companies are removing customer’s reward points that they have earned, because the customer didn’t pay on time,” says Scott Gamm, founder of the personal finance website HelpSaveMyDollars.com. Some card issuers won’t even let you pay a fee to get those points back, so they are gone for good, he adds. In addition, some card issuers will freeze your rewards points until your payments are up-to-date.
- What do banks say they are for? To penalize you for making a late payment.
- What do they cost? Typically, $29.
- How common are they? Somewhat common. American Express charges the fee. In the fine print of some rewards cards, the issuer reserves the right to charge these fees, but as of the publication of this article, they don’t actually charge them.
4. Activity fees
So-called inactivity fees — which are charged by issuers to cardholders who don’t use their card — are limited by the Credit CARD Act to only those cards left unused for more than a year, so the industry had to change their plans. Here’s what they came up with: The fees are charged if you don’t charge a certain amount on the card or they’re charged each year automatically and then refunded if you don’t charge a certain amount on the card. For instance, some Citi cards charge a $60 fee that fee is rebated back to you once you charge $2,400.
- What do banks say they are for? To ensure that you use your credit card.
- What do they cost? $50 to $100 a year.
- How common are they? Somewhat common.
5. Payment protection fees
A monthly fee you sign up for that provides minimum payments and suspend any finance charges if you are unemployed, ill or have some other type of qualifying hardship. Payment protection insurance can go by many names — credit shield, credit safeguard. payment protection — but “It’s basically an insurance policy,” says Ryan Himmel, CEO of BidaWiz.com, a site that provides answers to financial questions. “One of the big drawbacks to this type of plan is that you’ll pay 80 to 90 cents for every $100 of your balance, which can cost $70 to $80 a month if you have an $8,000 balance.”
- What do banks say they are for? To cover your minimum payments if you experience a financial hardship.
- What do they cost? 80 cents to $1 for each $100 you spend or carry as a balance.
- How common are they? Very common.
6. Paper statement fees
A fee to receive a paper statement in the mail. Bank of America, for example, has begun to roll out a $9 per month charge for paper statements on some checking accounts.
- What do banks say they are for? To pay the costs involved for the credit card company to print and mail your monthly credit card statement.
- What do they cost? $1 a month.
- How common are they? Somewhat. Some store cards are moving to a paper statement fees, but most big banks haven’t.