Consumers face a new card game

Some customers of First National Bank of Omaha recently have been given this choice: Since you haven't used your First National credit card in more than two years, would you rather have the account closed or start paying an annual fee to keep it open?

Consumers may face more questions like this, because the credit card industry is getting ready for a set of new federal banking rules that take effect Feb. 22.

It's a time for banks to experiment with what consumers want, and a time for consumers to pay attention to notices they receive from their banks and to let their banks know what they want and what they don't want.

“Whatever we do, our goal is still to have a consumer product, and you need to provide real value to the consumer,” said Stephen Eulie, president of First National's national credit card division. “We're always going to make sure our product is competitive, and a lot is happening right now in the industry.”

The card industry seems to be moving toward annual fees for existing customers, Eulie said, instead of “nuisance” fees for such missteps as late payments, over-limit charges or returned checks.

Some banks already are experimenting with the fees, including some that could fall even on people who use their cards regularly but pay off their account balances every month.

Bank of America is testing annual fees on about one-half of 1 percent of its consumer accounts, and some fees might fall on those zero-balance customers.

“We notified those customers earlier this month and the fee will appear on the February statement,” said spokeswoman Betty Riess. “Customers can reject the fee, but we will close the account.”

Citigroup is charging some customers annual fees if they don't charge a certain amount, typically $2,400 a year, according to the Chicago Sun-Times.

The new rules limit banks' ability to raise interest rates on a customer's account even if there's a rising risk of default, said Peter Garuccio, a spokesman for the American Bankers Association in Washington, D.C.

“In order to continue to make cards available to people at mutually beneficial prices, you've got to figure out some way to make adjustments,” Garuccio said. “I think what you are seeing now and have seen for the last couple of months are the issuers kind of tinkering around a little bit, experimenting if you will, in seeing what their customers like and don't like.

“At the end of the day, customer choice and customer satisfaction are going to drive most of this. Despite the difficult economy and despite the impact of the reform measures, the credit card industry is still extremely competitive. If one bank rolls out a new fee structure that customers simply don't like, customers are going to vote with their feet.”

Congress passed the Credit Card Accountability Responsibility and Disclosure Act in May. Some provisions went into effect in August; the rest take effect Feb. 22. Generally, the law is aimed at protecting consumers from abusive fees, penalties, interest rate increases and other changes in their accounts.

First National's Eulie said the Omaha bank has looked only at possible fees for inactive cards.

“There's a cost to supporting these accounts,” he said, noting that the bank must mail annual privacy notices and send reports to credit bureaus, among other tasks.

First National has 3 million customer accounts and is one of the national leaders in issuing cards on behalf of smaller banks.

As a test, First National sent out some cancellation notices on accounts that had been inactive for more than two years.

Some of the customers contacted the bank and said they wanted to keep the cards, so First National decided to give them the option of paying a fee to keep the card active. Some customers agreed and paid the fee. Others didn't respond, either because they didn't want to pay the fee or because they had quit using the card long ago.

“It's early yet, and the indication is that there is a group of customers who would be willing to pay an annual fee to keep an account open, even if they don't use it, as a backup card,” Eulie said.

First National may make the same offer to other inactive cardholders, he said, and is considering other fees but hasn't done any other testing.

In general, he said, the bank would want to enhance the card's value in exchange for a fee

Eulie said the business is still “highly competitive” and some card issuers may continue offering no-fee cards even under the new rules.

“We just want to be fair, but we want to make sure that we're able to operate the business going forward in a profitable manner,” he said. “It may be that the customers are looking for more simplicity and stability, hopefully more transparency. We'll have to see how it goes.”

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