MONEY

More Money Thursday Roundup: Avoiding an Audit & Online Shopping Shortcuts

  • The new credit card rules take effect on Monday. So the White House is hosting a live town hall at 2 p.m. EST with economic adviser Austin Goolsbee, who will answer your questions about the reforms. [CreditCards.com]
  • Online shopping is even better if you know the best tricks. Use search engines like Google, Bing and Yahoo! for some shopping shortcuts. [Shopping Journal]

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The Onslaught of New Credit Card Fees Begins

The bulk of the CARD Act goes into effect on Monday–and the industry backlash is well under way.

Last summer, Citibank started testing a new annual fee for some of its cardholders: Customers would have to pay anywhere from $30 to $90 a year for the privilege of using their Citi credit cards. If they charged $2,400 a year on their card, the fee would be refunded.

It looks like the tests went well (for Citi, at least).

This weekend, I received this letter, dated Feb. 13, regarding my PremierPass MasterCard:

We’re writing to let you know about an important change we’re making to your account. Effective April 1, 2010, an annual fee of $60 is being added.

The reason we are making this change is to maintain the quality of our service and the rising cost of doing business. However, because we value you as a customer, we wanted to give you an opportunity to have the annual fee credited back to your account.

Here’s how it works. Each year, we’ll credit the $60 fee back to your account once you have made $2,400 in purchases during that year. That comes to an average of $200 in spending a month, an amount you can reach by using your card for purchases you already make, like gas, groceries, cell phone plans or your cable bill.

As always, you have the right to opt out of this change and close your account. Please read the Notice of Change in Terms and Right to Opt Out beginning on the back of this letter so you are fully aware of all your account changes. If you have questions, call 1-866-915-9425.

Customers who choose to close their accounts but still carry a balance will be able to pay off the debt at their current rate. It’s unclear how many customers are targeted by these letters, but the decisions are based on individual customers’ credit history and performance with Citibank.

Now, I don’t charge $2,400 to this card each year (I get better cash back rewards with another bank), but I do use it enough to keep it active. Guess that wasn’t good enough. It certainly wouldn’t break my heart to cancel the account–but doing so will cause my credit score to dip a little bit (I’ll have less credit available to me, increasing my debt to credit ratio–a factor that impacts credit scores).

So I called customer service to see if I could get myself out of the fee. The rep who took my call at first reiterated the letter–that I could get the fee credited back to me by spending an average of $200 a month with the card. But then I explained that if that was the case, I’d probably want to cancel the card–and wasn’t there a way to get out of it altogether? I was told that he couldn’t reverse the fee right now–since I hadn’t been charged it yet–but that when it actually appears on my statement, I can call back to get it reversed. I was a little skeptical, but the rep said that he looked at my history and I seem to be a good customer, so it shouldn’t be a problem. (He did imply that I was probably targeted because my annual spending on the card was low.) He even gave me his ID number as some sort of confirmation. I ended the call without canceling my account, but I’m not sure what to do just yet. What if I don’t opt out before the March 31 deadline hoping for a reversal–and get stuck with the $60 fee?

Citi spokesperson Samuel Wang had this to say about the new charge: “We understand that customers can be frustrated by new fees, especially in difficult economic times. However, this action is necessary given the increasing costs of doing business. We also recognize that customers are frustrated by complicated notices and a perceived lack of options. That’s why we are taking a very different approach than others in the industry by communicating these changes in a clear way and providing customers with greater choice and more control. Customers have the opportunity to have the annual fee credited back to their account by using their cards for the purchases they may already make on a regular basis. As before, every customer has the choice to opt out and pay off the existing balances over time at their current rates and fees.”

But when asked whether a customer can ask for the fee to be reversed, Wang responded that the customer should opt out of the card, pay down the debt and close out the account.

So what should I do? Close now, or try to wriggle out of the fee later? It’s clear major card issuers are clamping down on cardholders (like me) who don’t generate as much profit for them. Since I don’t carry a balance or incur late fees, I’m basically getting an interest-free loan when I use my card. Still, every time I swipe, I generate merchant fees for the bank. But apparently I’m not doing it enough to make it worthwhile for Citi (thus the annual-fee-or-spend-more gambit). I do suspect that if I call to ask for the fee to be reversed, the service rep might grant my request because I still am a pretty good customer and not much of a credit risk to them. Of course, the party line at Citi is to not even try.

I’ll hang onto my card for now and think about it. But I better get used to these kinds of letters from my card issuers. Because I think the changes have just begun.

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More Money Friday Roundup: ETF Hazards & When Not to Tip

Personal finance from around the Web:

  • Exchange-traded funds are all the rage these days, but are they right for you? Here’s a primer on perks and pitfalls of ETFs. [USA Today]
  • If your teenager is more worried about the latest Twilight movie than her latest bank statement, she might need some credit guidance. Here are some tips to help your teen become credit savvy before the balances accumulate. [Wise Bread]

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More Money Thursday Roundup: Text Your Health Questions & Pay Taxes on Unemployment

Personal finance from around the Web:

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‘Help, my credit-card rate tripled’

Dear Money Helps: In August 2005, I signed up for a Bank of America credit card with a great fixed rate of 6.9%. Last year I got married and put a lot of wedding expenses on the card, figuring to pay it off in a year or so. I opened my bill last month, and my rate had shot up to 19.99%! I called the bank and was told that I’d been mailed a notification. But I never received it. Can the issuer really triple my rate even though I always pay on time? And is there anything I can do to get my 6.9% back? – Eric Jones, Denver

Answer: Unfortunately, even diligent customers like you can get slammed with out-of-nowhere rate hikes. That’s because some credit-card issuers, including Bank of America, have a policy – buried in the fine print of your contract – which says your rate can change at “any time for any reason.”

According to Bank of America spokeswoman Betty Riess, the most common reasons for a rate hike are a change in a customer’s credit score and a change in account activity. There are no blemishes on your credit history, but your $13,000 balance was close to the card’s limit. And that, the bank says, is why your rate was raised. You may argue with that logic, but because of the policy, it’s perfectly legal.

Issuers are required to notify you about any APR change and give you a chance to pay off the balance at the lower rate (though any new charges would be at the higher one). Since you say you never received the mailing, Bank of America agreed to restore the 6.9% on your existing balance and refund the $150.81 in interest charges on the higher rate. They also offered to reduce your rate on new purchases to 9.99%.

Still, I’d suggest shopping around for a new card – maybe one with a 0% balance-transfer rate – so you don’t risk that APR spiking again arbitrarily. Check out CardRatings.com for ideas. Just be sure to scan the fine print for the “any time for any reason” clause and the phrase “universal default,” which means your rate can be hiked if you’re late on another debt. Or go with a card from Capital One, Discover or Citibank – issuers that do not have these policies.

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