Bank of America Tries but Fails to Defend New Annual Fees

by Odysseas Papadimitriou on November 10, 2009

no-repricingLast week, we posted a blog entry that called out Bank of America for its plans to begin testing the introduction of annual fees on active credit card accounts. Relative to the October 6th media frenzy that occurred after BofA wrote letters to both Sen. Chris Dodd (D-CT) and Rep. Barney Frank (D-MA), pledging that it would stop re-pricing its existing credit card customer base, these new annual fees are unethical and contradictory to the promise the bank made to both lawmakers and to its customers. Additionally, it is our belief that if Bank of America moves forward with its plans to raise membership fees on existing customers into 2010, it will be breaking the laws mandated under the CARD Act, which is slated to take effect in February of next year.

We knew our blog post might spark some controversy, and that it would likely circulate quite a bit. Nonetheless, we were still surprised when we were contacted by Bank of America’s corporate communications department. The spokesperson who contacted us insisted by phone that Bank of America’s letter to Sen. Dodd and Rep. Frank referred to interest rates and interest rates only, and that it made no mention of annual fees. We found the letter. Here’s what it said:

“In light of the concerns expressed to us by our customers, Bank of America will not implement any change in terms (risk or economic based) re-pricing of consumer credit card accounts between now and the effective date of the CARD Act.”

It’s true. The letter did not mention annual fees, but we also did not find the word interest or rate anywhere in the text. Read the full copy here. A week after it wrote these letters, Bank of America made the announcement that it would begin “testing” the introduction of annual membership fees on select customers. But consider that if an annual fee of $50 is introduced to a credit card account with a $500 balance and a ten percent interest rate, the overall yearly cost associated with that credit card doubles. Now, if that’s not “re-pricing” we’re not sure what is. Like we said before, Bank of America has contradicted itself and misled its customers.

Bank of America’s spokesperson also maintained that BofA’s plans to increase annual fees on existing credit card accounts into 2010 would not be a violation of the CARD Act. However, it is precisely because of the lack of explicit language in the bill that Bank of America could find itself in trouble. Whether or not the increase of annual fees on existing credit card accounts is illegal under the CARD Act will be left up to regulatory interpretation. However it is our strong belief that that after the CARD Act takes effect neither regulators nor lawmakers will have any appetite for credit card issuers who use tactics like this to dodge the stipulations of the CARD Act that promote consumer protection by preventing banks from re-pricing existing credit card balances.

In our last post, we used Chase as a precedent to illustrate how things might play out for BofA. Additionally, based on the ruling in a 1996 Supreme Court case involving CitiBank (i.e. Smiley v. Citibank), it is the opinion of the General Counsel of the FDIC that the term interest includes “numerical periodic rates … annual fees, cash advance fees, and membership fees.” This proves our contention that interest rates and annual fees are linked by regulatory definition. This has been our argument since we began covering this issue, and is a nuance Bank of America doesn’t seem to understand.

Naturally, at the end of our call, Bank of America asked that we stop circulating our blog post from last week. But we’re going to hold off on that until they provide the public with some clearer answers. The more digging we do, the more it seems like Bank of America should be taken to task. And it’s possible that we’ve just cracked the surface.


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July 2 at 05:33 am
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July 2 at 05:31 am
I was also charged a $59 annual fee because of collection filed by landlord but I am always on time with my payment with BA, I have 2 checking accounts with them with both direct deposit on it, and 2 other credit cards. I haven't call them yet.
February 17 at 03:50 am
I just got charged a $59 annual fee on a card I've had since 1975 although I have credit scores above 740 on all three reports and have not missed any payments (automatically drafted). The customer rep said it is because I have only one account with BOA. As soon as I can pay this off, I will have none.
February 16 at 15:11 pm
John Wright
If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!

BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled "Piggies" I invite you to listen to this song on youtube and see if it appropriately fits.
April 16 at 23:22 pm
I was a customer for 34 years. I will not pay an annual fee for USE of their card. My issue is the credit score. If I decide I dont want to pay why should I have this effect my good credit??? They know they have you between a rock and a hard place.

The timing of the additional fee before the deadline in February is a game which shows the integrity of this bank. I cancelled my card. Thirty Four Years-
December 29 at 08:16 am
Hi, Odysseas. I think BofA is demonstrating once again why they are so disliked. I've made more comments here:
November 11 at 20:56 pm
Jerry Vandesic
If that's the case I wonder if they will try to get around the law by closing existing accounts, but offering to open a new account that has a fee (and transfer the old balance)? They could raise the interest rates at the same time.
November 10 at 16:18 pm
Odysseas Papadimitriou
Jerry -- The bottom line is that they cannot call interest rates something else in order to get around the law. The most recent example is what happened to Chase a few months ago. It will all come down to how exactly BofA uses these increases but it seems that they are heading into dangerous territory.
November 10 at 13:56 pm
Jerry Vandesic
It's been ten years since the FDIC opinion. Do you have any indication that the optinion is still being used on a regular basis or could it have been superceded by changes to the law? Also, how well do the definitions of the terms used in the opinion and in the BoA customer agreement align? I would think that this is where lawyers could spend a lot of time (and money) splitting hairs.
November 10 at 13:32 pm
They also recently took "fixed loans" and turned them into variable loans, despite the fact that everyone with these loans were told that the rate would always be a fixed rate, not attached to the prime. Yet they did this. Some people have contacted them and have been able to opt out, while the rest of us have been told that this is not an option. This decision is not tied to poor credit or bad history, as I have neither. They want someone else to pay for their decisions: criminal.
November 10 at 12:41 pm
BofA has been lying for years. This is nothing new. They widely advertise "fraud protection". But when I advised them a pending $6900 transaction was fraudulent they approved it! I disputed and they didn't follow the law/their own procedures so I lost the dispute. It took three years to resolve the issue and I'm out $3800 on legal and other fees. BofA should be closely watched/regulated or shut down. All they want is to decieve and rip off consumers in any way they can.
November 10 at 12:15 pm
BAC Shareholder
Fire the head of the credit card division together with Ken Lewis. Forgetting the legality how can they make such conflicting announcements within weeks? It just shows you how they operate...
November 10 at 10:21 am

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