Bank of America Readies Itself to Break the Law

by Odysseas Papadimitriou on November 3, 2009

illegalIt seems that Bank of America has already reneged on the October 6th promise it made to stop raising the interest rates on the credit cards of its existing customer base.  Just a week after making this pledge, BofA announced that it would begin introducing annual membership fees, ranging from $29 to $99, to select customers next year.  Combined, these two announcements result in a net win of zero for consumers, and in an unethical bait and switch play on the part of Bank of America.  Why?  Because, according to regulation, interest rates and annual membership fees fall under the same umbrella.  They are both considered finance charges.

While BofA postured as if was taking a step towards consumer protection in making the announcement that it would stop raising rates, the introduction of new annual fees to existing credit card accounts will still result in increased finance charges for account holders, even if those finance charges are referred to and assessed by another name.  For insight, consider that the addition of an annual fee of $50, on a credit card account with $500 balance and a ten percent interest rate, would double the overall yearly finance charges associated with that card.

Bank of America is using the introduction of these new fees as a tactic to shore up its credit card portfolio in the face of falling profit margins.  However, going about it in this way is at best unethical.  When you strip away the industry and product specific terminology, BofA’s pledge that it would stop raising interest rates set a reasonable expectation among its customer base that the cost of their credit card accounts with the lender would not rise again.  Additionally, with many consumers closing out their credit card accounts or transferring their balances due to rate hikes, a promise to stop raising those rates could very well be viewed as a marketing promise – reactive marketing, but marketing non the less.  Subsequently introducing, new annual fees violated this promise based on the expectation it presumably set with the bank’s existing customers.

In January of this year, with our help, the New York Times broke a story that called out another credit card issuer, J.P. Morgan Chase, for violating its marketing promises using a formula very similar to what we now see with Bank of America.  After the story ran, Chase was pressured by New York state Attorney General, Andrew Cuomo to change its tactics, and went so far as to extend refunds to customers for the membership fees that it had collected up until the point that the policy was reversed.  Unfortunately, almost a year later, there’s been no lesson learned and BofA is engaging in similar behavior.

At the end of the day, all of this points to incompetence on the part of Bank of America’s credit card division.  First, BofA made two contradictory announcements, which points to the fact that the lender seems to think that its customers aren’t savvy enough to realize that they’re being had.  Secondly, it doesn’t seem that Bank of America has read the CARD Act, which is slated go into effect in February, if not sooner.  Chase got in trouble because it increased membership fees for existing customers after it promised that interest rates on those accounts would remain constant.  If Bank of America moves along with its plans to introduce membership fees to existing customers into next year, it will find itself in much hotter water than Chase did.  This is because after the legislation is enacted raising the interest rates (annual membership fees included) on existing balances will be illegal.

Lastly, with or without Chase as an example, BofA’s credit card division should have the experience and expertise to know that from a regulatory standpoint the introduction of new membership fees to customers with non zero card balances will be against the new credit card law.  It’s about time for entities that are being bailed out with billions of dollars in taxpayer money to stop making rookie mistakes like these.

Discussion

Mike Arthur
Bank of America is Baiting the customers to get NSF fees by removing pending Transactions and restoring the amount back to the account balance so you can make a mistake and use the money in your account.
February 24 at 08:56 am
Linda
I signed up with BOA because they didn't have an annual fee. I also pay my bill every month, and i am never late. That didn't stop them from assessing a 59.00 annual fee. So Voila, no fees! is Bullcrap! Hope this turns out to be against the law, because i have had enough. They "are" money hungry crooks. Will be paying them off and cutting up my cards. Don't need them that bad.
March 9 at 17:19 pm
Danny
I was a faithfull paying card holder for 15 years,never missed any payments.Then one day they raised my interest rate to 20%++.I called them and they wouldn`t do nothing about it,so in return I stopped paying them.They scr@wed themselfs out of getting their 13,000 back! I have allways had awsome credit 800+ on my credit score but credit isnt worth keeping to put up with these crooks!
January 25 at 01:31 am
Dropped
I cut my BofA Visa in half. Good-bye, crooks.
November 14 at 14:52 pm
James Martin
If BOA could make one extra nickel breaking the law up to and probably including murder, they would.
November 10 at 16:20 pm
Gary
I agree that if the new law says that it is illegal to charge annual fees then they would be breaking the law. But the law makes no sense to me. Credit cards are a very competitive business. For those with decent credit, we can go wherever we want.
November 5 at 16:09 pm
Anonymous
So just throw those with only so-so credit, or who might have been caught in unfortunate or less privileged circumstances, to the sharks then?! Wow... heartless. My credit is fine, but I do not appreciate some of these companies that take advantage ofand prey off of their customers. Bait-and-switch, predatory lending, fine print, confusing matrices... all lead to me wasting too much of my time trying to avoid paying excessive and unwarranted fees.
November 8 at 11:18 am
Anonymous
Want to avoid paying any fees? Here's what you have to do. It's a bit complicated, so follow along.

Step 1. Choose a credit card with no annual fee.
Step 2. Pay your bill, in full, every month.

Voila, no fees!
November 10 at 19:28 pm
Unhappy
I've been a long time customer of BoA and get treated horribly. Over the years they have failed to delivery numerous statements, reverse unauthorized charges and refuse to make good on thier word to remove negative feedback on credit reports. I finally had enough and got a lawyer--they will pay dearly for their oversight and negligence.
November 3 at 15:12 pm
Anonymous
I finally just closed all of my accounts with them this fall (all except one credit card... grrr!!) and switched to a local credit union. Fed up with the greedy basterds!
November 8 at 11:11 am
Manos
Finally someone calling out these sleazy credit card issuers with FACTS! Good job WalletBlog in identifying how citizens of this country can use the law to their advantage!
November 3 at 12:39 pm
MsRUSK
No one is entitled to free money. We'reA paying for a service - the convenience of using a credit card. Thank the government for changing the way credit card companies determine rates - now I have to pay for everyone else's bad behavior.
November 3 at 09:32 am
Hector Soto
I am a Bank Of America card holder. I have been talking to them about issue that have come up and it not allowing me to make my payments. They would not help me and just stated that I hadd to pay anyway.
To make matter worst, They took it up on there self to go in to my ex girlfreind accout and fraud to checks of over a Thousand dollars and now she is behind on her bills. How can they get away with this ?
November 3 at 06:09 am

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