Tuesday, April 13, 2010

How the Inactivity Fee Affects You

In started back in late summer of 2009, credit card companies found another way to make money, charge consumers more fees. The credit card companies invented inactive or dormant fees. If you don't use your credit card within 6 to 12 months or more you will be charged an inactivity fee of $2-$5.

I belong to a credit union and thought I was shielded from some of the fall out of the credit card companies penalties to consumers after the CARD act became effective February 22, 2010. Wrong! Starting September 1, 2010, customers of my credit union will be charged an inactive fee for accounts that have not had any activity for 12 months and a dormant fee for accounts that have not had any activity for 2 years.

In a report by Bloomberg, customers of Fifth Third Bank are being charged a $19 inactivity fee for a credit card that had no fees associated with it for the past several years. Bank of America, JPMorgan Chase & Co., the Capital One Financial Corp. and Discover Financial Services currently do not have inactivity fees but have increased other fees associated with their credit cards.

Credit card companies have been warned about raising rates and establishing “inactivity fees” during the nine-month “grace period” that started with President Obama’s signing of the credit card reform legislation in May 2009 which ended with the CARD Act’s compliance on Feb. 22, 2010.

On March 3, 2010, the Federal Reserve proposed new rules that define penalty fees under credit card reform laws by prohibiting “inactivity fees”. Fees for “inactivity” are based on failure to use a credit card over a specific period of time or on a balance that is kept at zero for an extended period of time.

Closing an account to avoid paying an inactivity fee may lower your credit score if the account is less than 2 years old. Credit card companies don't want you to use your credit card to the maximum limit but they do want you to use your credit card and if you don't you are penalized because they can't make any money off of you.

Stick to paying for items with cash, that way you avoid paying any fees associated with the credit card, pay less money for the item because you don't have to pay interest and finance charges and you still help the economy because you are making a purchase.

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