Bank of America to Impose Annual Fees on Transactional Users Credit Cards:

A couple of weeks ago Bank of America announced that it would not raise interest rates in response to the new regulations imposed by the CARD Act.  At the time I didn’t understand how Bank of America could apparently repeal the laws of supply and demand when no one else could.  Now I understand–yesterday B of A announced that it was going to impose annual fees on some of its cardholders, particularly targeting those who do not revolve balances or pay penalty fees.

As I noted a few weeks back, annual fees are a particularly pernicious form of term repricing by credit card issuers because they deter card-switching and the holding of multiple cards by consumers.  As a result they have a hugely detrimental negative effect on competition.

To make matters worse, Congress apparently is considering imposing new regulations on interchange fees, which today is the primary way in which card issuers recoup the costs of serving transactional users.  If Congress does this, then this will accelerate the trend toward reimposing annual fees–and further exacerbate the negative impact on competition and consumer choice.

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