Is Bank of America Breaking the Law With New Membership Fees?

Photo (cc) by Betsssssy

This guest post comes from Odysseas Papadimitriou, CEO of Card Hub.

Bank of America, while not exactly breaking the letter of the Credit Card Act of 2009, is certainly violating its spirit this year. While the Fed recently closed a lot of loopholes in the act – which banks used to extract more money from their customers – B of A keeps searching for new ones.

The $59 “membership fee”

Bank of America recently announced it would add a $59 “membership fee” to about 5 percent of its credit card accounts – using a mix of below-average FICO scores, “high credit utilization,” and poor payment history to decide who gets hit. While not illegal, this new fee breaks the intent of the CARD Act, which prevents credit card companies from increasing interest rates on existing balances until account holders are 60 days delinquent. Sure, this membership fee isn’t an interest rate increase, but it does arbitrarily hike the cost of credit card debt – which is exactly what the CARD Act is designed to prevent.

CARD Act intent

This rule was implemented to prevent credit card companies from trapping customers and forcing them to abide by terms that were not advertised. If Bank of America’s fees were to be applied to customers without debt, they wouldn’t be a problem because these customers could just close their accounts and switch companies.

But Bank of America’s risk-based re-pricing exploits a semantic loophole. Membership fees and interest rate increases are effectively the same thing when applied to indebted accounts. Both are finance charges, according to Regulation Z – Truth in Lending Act. While the membership fees will help Bank of America increase profits in the short term, this type of fee could hurt consumers in the long term.

Credit card industry must self-police

Bank of America needs to focus less on stop-gap revenue schemes and more on improving the underwriting practices of a credit card division that lost more money than that of any other major bank in 2009, the worst year of the Great Recession.

This is especially true if the company wants to truly compete with the most sophisticated issuers – such as Capital One, whose credit card division made more money than any of its major bank counterparts during 2009.

And regulatory agencies aren’t going to stand pat. They’re going to keep closing legal loopholes and stop deceptive practices as they arise. This is particularly true considering that the Consumer Financial Protection Bureau is scheduled to gain new authority in July, under the leadership of consumer advocate Elizabeth Warren. In a speech given at the Department of the Treasury in February – the one-year anniversary of the CARD Act – Warren spoke to the importance of continuing regulation…

As soon as the CARD Act became law, it seems that some industry lawyers were asked to find slightly different ways to accomplish that which the legislation was intended to outlaw. To its credit, the Federal Reserve Board responded with a rule-making proceeding designed to close the loopholes. I doubt that anyone thinks this is the last time such a rule-making proceeding will be required.

Ultimately, regulators aren’t going to turn their attention from credit card companies until these organizations prove they can police themselves. So Bank of America, for its own sake, should not proceed with its planned membership fees.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
What’s the Difference Between FICO and VantageScore Credit Scores?
What’s the Difference Between FICO and VantageScore Credit Scores?

There are lots of credit scores out there, but if you’re keeping an eye on your credit, here’s the one to watch.

Half of All Retirees Say They Fear This
Half of All Retirees Say They Fear This

Chances are good that you share this fear. Here’s a way to overcome it.

8 Things You Can Buy for $1 or Less on Amazon
8 Things You Can Buy for $1 or Less on Amazon

They say you get what you pay for — but not always. Sometimes, you can uncover a good deal at a great price.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

3 Easy Ways to Get Laundry Soap for Nearly Nothing
3 Easy Ways to Get Laundry Soap for Nearly Nothing

Not using any of these methods for saving on laundry detergent? Then, you are washing money down the drain.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

Why Your Next Stimulus Check Might Be Bigger Than You Expect
Why Your Next Stimulus Check Might Be Bigger Than You Expect

Your third coronavirus payment will be the biggest yet — and possibly even bigger than you realize.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.