How to fight the coming wave of credit card junk fees

When William Livingstone booked a recent airline ticket from Warsaw to Madrid, he found something unusual on his bill: a $15 “credit card fee” with no explanation. It appeared his credit card was just helping itself to some of his money because it could.

Why? Perhaps it was a currency exchange fee, the result of converting dollars into zlotys. Then again, it just could be a money grab by his airline. Hard to say.

Livingstone, who runs a business in Helena, Mont., is one of many bewildered credit card customers who have encountered mysterious fees on their statements. These fees should have quietly vanished after passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, a law that clamped down on nuisance fees. But with a new, pro-business administration in power, industry watchers expect a surge in junk fees as the shackles of federal regulation are carelessly unlocked.

Livingstone, who believes he was overcharged for his airline tickets, tried to find the reason behind the fees and other charges, and contacted me for help. “This is fraud,” he said.

Yes, it sure feels that way. And it’s happening on such a breathtaking scale that makes it so much worse. It’s institutionalized, sanctioned fraud that represents a colossal regulatory failure. If you don’t want to become the victim of a junk fee, there’s really only one person who can help: you.

Fees are still here

“Credit card companies are masters at making money,” says Jake Serfas, a lead financial strategist at O’Dell, Winkfield, Roseman and Shipp, a Washington, D.C., retirement planning firm. “They convince the public that everything they want is only a swipe away. But what is that swipe really costing the consumers?”

A lot. More credit card companies are charging a range of fees for everything from card replacements, reward redemption, foreign currency conversion, over the limit, duplicate statement, balance transfer and account closure. Many of these are “junk” fees, meaning they effectively cost the company nothing to provide and are almost pure profit — in other words, they charge them simply because they can.

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“Most of these are small, ranging from $1 to $12 per fee,” explains Serfas. “And although it may not seem like a lot to a consumer, spread out over millions of credit card users and they are making hundreds of millions of dollars in small charges.”

Why isn’t the government doing more? Well, the CARD Act, which was designed to protect consumers from hidden and unreasonable fees, eliminated some charges. But hidden fees remain a key revenue source for credit card companies and for merchants.

“Hidden fees are still part of the business,” says Roseman.

They charge for that?

What to look for? Actually, it’s more a question of what not to look for. If you’re not reading your credit card statement at least once a month, chances are you’re missing something.

Here are just three particularly egregious examples:

The reordered transaction trick.
If you have overdraft protection on your account, watch for this little trick: Your bank will reorder your transactions throughout a day to maximize the number of times that you pay overdraft fees. “Consider this example,” says Nick Clements, who runs a site called MagnifyMoney that publishes transparency scores for financial institutions. “You start the day with $50 in your account. You then make three withdrawals throughout the day, the first at 10 a.m. for $20, the second at 1 p.m. for $20 and the third at 7 p.m. for $40. In this particular scenario, you should have only overdrawn on your account at the third transaction, right? The trick happens when your bank reorders your withdrawals so that the $40 happens first, then a $20 and then the final $20. In this case you would have actually overdrawn twice.” Legal? Yes. Unfair? Without a doubt.

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The balance transfer fee.
Say you’re carrying a balance and want to transfer the amount to another card with a lower interest rate. Watch out! Your card may charge a “balance transfer fee” of 3% or $5 — whichever is higher — to do it. “It’s in the small print,” says Adam Jusko, the CEO of the credit card website Credit Card Catalog. This is particularly nefarious because it’s often part of a “Zero percent” initial rate. “The card issuer is essentially using the balance transfer offer as a marketing ploy to lure customers away from competitors, but instead of just taking it as a marketing cost, they can’t curb their natural tendency to squeeze a buck out wherever they can,” he says. The card company makes money on both ends of the deal.

Cash advance fees.
“You’re in enough of a pinch that you’re turning to your credit card company for a cash loan,” says Kerri Moriarty, the head of development for Cinch Financial, an optimization service for personal finances. “Now you’re not only subject to a much higher interest rate – nearly 5 percent higher than your regular purchase rate – but also a fee in the form of 4 percent of the advance amount,” She advises exhausting all other possible options first, like withdrawing from a retirement account or using a home equity line of credit or even just asking a family member or friend for a short-term loan, all of which will cost you less in the long run.

Of course, this is just a small cross section of possible credit card fees. Banks, credit card companies and merchants are creative. Just when you think you’ve seen it all, along comes another surprise fee.

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How to avoid them

Experts say you can escape from these fees with three proven strategies: behavior modification, early detection and resistance. First, know what kinds of activities can trigger a junk fee. Those include large charges, transfers, late payments and making purchases in a foreign country. Avoid doing those things, and if you can’t, at least ask your credit card company how much it will cost and request a waiver, if possible.

Next, monitor your credit card statement very carefully. If you see anything that appears out of place, notify your bank or merchant immediately.

The final strategy is resistance: fight the fees. Banks know these are junk fees and are likely to roll over when you challenge them. “You could also use some leverage and threaten to cancel a card and switch to another credit company for reduced charges,” adds Serfas, the financial strategist. “This could even be a great time to ask for a lower interest rate.”

Don’t be too quick to pin a junk fee on a bank, though. As Livingstone found out, his $15 fee was added by Ryanair, the discount airline he’d booked his tickets through. It charges a flat two percent fee on all credit card transactions.

Why? Why not?

One thing seems clear: These junk fees are poised to expand in the current laissez-faire regulatory environment. The only person who can save you is the one staring at you in the mirror.

Yes, gorgeous. I’m looking at you.

Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at Read more of Christopher's articles here.

  • sirwired

    I can’t say I object too strongly to a business charging a credit card fee, if such fees are allowed under their contract. A business is charged by their bank for credit card transactions, why not pass those costs on? If it’s unavoidable, it should be included in the quoted price, but if you can avoid it, itemizing the charge makes sense.

  • AAGK

    Another big one involves no interest promotions. Many folks do not realize that when the interest kicks in, you are responsible from the day you opened the card/purchased the item. Moreover, your monthly payments, which normally would go towards the items with the highest interest rate, have only been going to the zero %, until the month prior to the promo end date. So a $2k TV turns into a $5k TV very suddenly. The card act does not require a reminder notice.

  • AAGK

    The positive take on this is that the banks and credit cards that do offer value more consumer friendly practices, are easier to identify. Also, the public has caught on thanks to this site, the CFPB, etc. My bank could reorder transactions that way, as it reserves that right in our Agreement, but it does not, and I appreciate that. Don’t go with the card or bank bc of the points offer. Do business with a company you trust, form relationships with people at your bank. Banks have so much discretion.

  • James

    These are part of the reason why I am an advocate of using cash for as much as one can. There are places for credit cards (on-line transactions, etc) but for routine day-to-day stuff, I pay cash. Those green sheets of paper are “pay and forget,” i don’t have to worry about being certain the payment is delivered to the bank I don’t worry about overdrafts, etc.

  • MarkKelling

    Ryanair and other merchants who do so charge a fee for accepting your credit card to offset the fee charged to them by the credit card company when you use your card to make a purchase. The fee a merchant is charged is called interchange and can be significant. Why does it exist? Because it can. Who do you think pays for all the miles and cash back you get from your credit card? Not the bank, they use interchange to pay you so they don’t lose any money on the deal.

  • Carol Molloy

    Some facts about posting order: while it is true that presently posting order is not proscribed by regulation, there is considerable regulatory pressure to adopt the most customer-friendly approach. The CFPB is currently working on posting order rules, which may create more consistency.

    Bank accounts are settled at day’s end. It is not a continuous, item by item process. That’s why it is crucial to keep track of your actual expenses, so a check that you wrote days ago is taken into consideration when you step up to the ATM.

    Debit card transactions present a different posting issue, particularly when they are after business hours, but before transaction processing cycles complete

    I am not defending posting order practices. I strenuously object to gamesmanship that results in higher fees for clients. It’s important to understand how it works, in order to make the best decisions.

  • cscasi

    My wife and I use credit cards for about ninety percent of our purchases and to date, we have never been charged an extra fee of any sort. As for travel related charges, one can normally look at his/her charges before pressing the purchase button on the website and also look at the terms and conditions to see what “extra charges” might be added. I am sure those like Ryanair disclose the “additional” charge(s) and one just has to take the time to look and verify before purchase.

  • BubbaJoe123

    “Why? Why not?”

    The why is pretty simple: the fee covers what RyanAir pays to the credit card company. Charging the fee is essentially RyanAir saying “you’re welcome to use a credit card to pay, but you’ll bear the cost, not us.”

  • John McDonald

    sometimes the credit card merchant fees is more or equal to the commission travel agents make from airlines.
    For foreign transactions, if you pay with a credit card via paypal, I think you avoid any international fees. Only question then, is how good is the exchange rate Paypal give you.

  • El Dorado Hills

    It is not uncommon in California to see gas stations posting two prices for each grade of gas, one price is the cash price and the second is the credit card price, which is normally 10 cents a gallon higher than the cash price. The station is passing on some of the credit card fees to the purchaser – but it is very clearly disclosed before you ever enter the station. You know up front what you will be paying if you use a credit card. I do not favor having a charge built into the price (in this case price per gallon) as the cash payer also winds up paying the extra charge to cover credit card costs.

  • John McDonald

    In Australia, we are very close to a massive recession (good for travellers to Australia).
    We have a GST(goods & services tax) of 10% on most things,(excluding basic food, health care & education & exports). NO GST on international airfares.
    With the economy slowing rapidly, many small businesses offer cash discounts. 10-15% is not uncommon, 20% is sometimes seen, OR when they have a price reduction sale, you get a bigger discount for cash, over credit cards. We have EFTPOS is OZ(electronic funds transfers at point of sale), where the funds go straight from purchasers bank account to business account by use of an ATM card. Published figures show that Australians in general are trying to kick the credit card bankwagon, due to massive interest rates of up to 20% or more, if you can’t pay the full statement on the due date(up to 55 days interest free). A credit card account in Australia, is basically an unsecured loan.

  • John McDonald

    In Australia, buying any airfare online, you will be charged to use a credit card. There are numerous ways to avoid this, by poli bank(funds directly from your bank account) or Bpay, which might be an Australian only thing.

  • sirwired

    I’d say it’s virtually always the case that the merchant fees are >= the agent’s commission, since few (any?) airlines actually pay commission any more. (Hotels and rental cars still pay, which is how online travel agents stay in business; many in-person agents charge fees now for booking airline tickets, especially if that’s all you book.)

    There are lots of way to pay foreign companies, many credit cards also waive foreign transaction fees. (I’ve used Capital One for years for this.) And just this year I got a card from First Tech Fed that, in addition to waiving the foreign fees, ALSO issues Chip + PIN cards, which is very handy if you are travelling to Europe. (Most US credit cards are Chip + Signature)

  • John McDonald

    was consulted by a travel agent, who has seen a drop in profits, but increased turnover, who was getting 20% commission a few years ago, on airfares(not the taxes & charges, which on cheap fares are often more than the bare fare) with one airline, they did a lot of business with (talking $5 million+ a year; that’s not 20% of $5 million, but approximately 20% of $3.5 million after taking out taxes & charges)
    Now they are getting 3% on same, but they now charge a fee & because they know what they are doing in relation to the destination they specialise in.
    The fee is time based & people are flocking to them, because their knowledge is valuable & cannot easily be found online.
    In my opinion, many travel forums or tripadvisor are biased, in one way or another & many people don’t bother reading them.
    With tripadvisor for example, you can buy positive comments. This can never be stopped.
    Australians have very long holidays compared to Americans. The absolute minimum annual leave is 4 weeks, but many like school teachers get up to 16 weeks & all are paid a 17.5% loading on top of their normal pay, when on annual leave, so Australians travel a lot.
    The agent showed me an example of resorts in the USA, which offer them much better rates than anything online + anything that Americans can get, because of Australians tendency to stay in the one place for weeks. The online rates are geared for 3 to 4 night stays.
    My obvious suggestion to them, was to push this side of the business & to stop doing things altogether where making tiny amounts, unless associated with what they do make a decent amount on & to maybe only do the things where they can make a decent amount, in other words specialise, specialise, specialise.
    Obviously, they have to get people to the resorts, so they sold a 1 day hire car, which they hardly made anything on, but clients needed to get to the resort, where the profits were.

  • Éamon deValera

    The balance transfer fee isn’t in the small print. It is in the disclosure box required to be on every offer of credit. The print cannot be smaller than the body of the offer.

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