Traditionally, the defaults on credit card debts rise or fall with the unemployment rate. With the unemployment now at 8.5 percent, the highest in more than two decades, credit card companies are suffering from a surge in defaults. Bank of America, for example, has $182 billion in credit card loans as of December 31, 2008. From this figure, the bank had to write off $11.4 worth of balances.

Accordingly, they will increase their balance transfer fees to 4 percent from the current 3 percent starting June 1, 2009. This figure reflects the rising cost of the bank. According to Linda Sherry, the director at Consumer Action, “They have stuck their neck out in this market by going to a 4 percent fee”. But for the bank, there seems to be no choice as they feel they have to make up for their losses.

But it’s not all bad news for the consumers. Bank of America will rescind the planned increase in their overdraft fees. They will keep it at $35 instead of $39. In addition, they will waive the monthly maintenance fees for three months for clients who became jobless.

How Much Do Competing Banks Charge?

Being the third largest bank in the country, this move from Bank of America will surely be felt in different parts of the US. Discover Financial Services also has plans to increase its balance transfer rate to 4 percent. The Illinois-based lender is already charging 4 percent on certain transfers though it still maintains 3 percent as its current rate.

Meanwhile, Bank of America’s main competitors – Citigroup and JPMorgan Chase & Co will maintain their current rate of 3 percent on balance transfers. It is important to note that balance transfers used to be free though it carried a 3 percent rate for many years. Lenders sometimes waive this fee to attract more clients.

Are Credit Card Companies Abusing Consumers?

Credit card lenders typically charge $10 as their minimum fee, there is no maximum. Banking institutions don’t reveal revenue data from balance transfer charges and related service charges. However, it is known that on average, banks derive 39 percent of their revenue from fees while the rest comes from interest payments. Another concern among consumers is the lower credit limit being extended to them. Meredith Whitney, an industry watcher, predicts that credit card lines will decrease by $2.7 trillion by 2010.

So are banks taking advantage of consumers? The Federal Reserve seems to think so. The agency has drawn up new regulations to protect consumers from abusing banking practices. The new rules are set to take effect in July 2010.

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