Penalty fees paid by consumers last year took another dip. After rising predictably year/year for most of the last decade, 2010 saw the first penalty fee decline, down from$23.9B to $22.5B, with 2011 showing a further drop to $19.4B, and 2012 dropping again to $17.8 B, according to the R.K. Hammer Card Penalty Fee Index. This is the fourth in their weekly series of seven year-end card trend papers, each one covering a different financial, marketing or operational metric.
The Research and Analysis division at R.K. Hammer (known as the Card Knowledge Factory®) calculates fees paid by card members in the following categories: late fees (the vast majority of the total), over limit fees (which took a nose dive the last 2 years due to recent legislation on opting-in requirements) and NSF fees. “Penalty Pricing” – or the raising of APR’s for delinquent accounts – is not taken into account for this calculation, as that would appear in the Interest Income category, not Fee Income.
Company Founder and CEO Bob Hammer stated, “Year-over-year growth of penalty fees hit a wall three years ago. However, as the card industry necessarily continues to look for ways to boost fee income, plus new fees where none existed before will be implemented. We know of no card issuer not presently weighing its fee pricing options, or implementing higher/new fees, where permissible; by how much and how soon, of course, has varied widely by issuer.”
“Four years ago, about the time that the economy was tanking and new card legislation was planned, we predicted ten areas where some issuers would likely consider charging or raise existing fees; six of those ten have already been implemented by some card organizations: customer service call fees (after some threshold number are exceeded in a given billing cycle); raising the cash advance fee to as high as 5% (and with no cap); inactive account fees (or closing those accounts); delinquent payment “default pricing” (to as high as 30% APR); second card or replacement plastic fees; and fees for receiving paper statements (waived under certain deposit balance level minimums or debit activity usage levels).”
“Not everyone has the same objectives for their card products, and we realize that. Importantly, those issuers who choose not to enhance their fee based pricing may perceive better card member loyalty and satisfaction ratings, but they do so at the risk of lower profitability than would otherwise be possible. For those who choose to offer the product line as a member benefit and not a pure profit center, this decision not to fully price the product may still achieve their corporate objectives. It is a two edged sword, a thin tightrope one walks when deciding whether to raise fees on card members or not.”
“What is still on the horizon for those in the card space and much less certain is to what extent the CFPB will exercise its new regulatory and oversight powers and suggest even more changes to the industry. It is R.K. Hammer’s take that the odds are vanishingly small that no more changes will occur.”
For more complete information on penalty fees, and specific amounts cards issuers earned last year for each type of fee, go to cardknowledgefactory.com
About R.K. Hammer
R.K. Hammer is a leading international card consultancy. Founded by CEO Bob Hammer in 1990, the firm conducts fairness opinions/valuations and portfolio sales, serves as expert witness for card issuers in litigation, and provides interim card portfolio management and general best practices consulting. Most major financial institutions have been clients of R.K. Hammer, plus card companies in 50 countries on six continents. Hammer has personally trained over 1,000 credit card executives throughout the globe in the past twenty years. The R.K. Hammer year end series of industry trends and key metrics are published weekly each January, with details available at rkhammer.com and cardknowledgefactory.com # # #