Bank of America's New Annual Fees Violate the CARD Act and Consumers

Last week, I posted an article 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 my 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.

I knew that my article might spark some controversy, and that it would likely circulate quite a bit. Nonetheless, I was 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 I also did not find the word interest or rate anywhere in the text. Read the full copy here. A week after it wrote this letter, 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" I'm not sure what is. Like I 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 my 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 my last article, I 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, it is the opinion of the General Counsel of the FDIC that the term interest includes "numerical periodic rates, late fees...annual fees, cash advance fees, and membership fees." This proves my contention that interest rates and annual fees are linked by regulatory definition. This has been my argument since I began covering this issue, and is a nuance Bank of America doesn't seem to understand.

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