Consumer Payment Card News

Nuisance Credit Card Fees Decline as Merchant Fees More Than Offset the Gap

Americans shelled out less in nuisance credit card fees, such as late payment fees and high-fee credit card cash advances in 2018, due a strong economy. The net result is the credit card industry lost about $28 billion in credit card fee income last year.

However, fees collected from merchants and shared with the four major credit card networks (Visa, Mastercard, American Express, and Discover), as well as the companies processing transactions, soared by $47 billion in 2018, more than making up the income gap. The fees (interchange fees) were also driven by more spending, driven by a strong economy says R.K. Hammer Investments Bankers, experts in the sale and acquisition of credit card portfolios.

Credit Card Nuisance Fees Decline as Economy Improves

Annual Fees & Fees for Special Perks Rise

In addition, income from annual fees increased in 2018 by $500 million, as U.S. card issuers stepped up marketing of high end reward cards with fees of $100 or more per year. Fees for credit card extras like income protection, additional cards, special discounts/rewards, (enhancements) edged up too last year by $700 million.

Credit card profits (after tax) among the nation’s Top 4 bank credit card issuers soared 31.4% in the fourth quarter (4Q/18), compared to one year ago (YOY). This compares to a YOY growth rate of 28.8% for the prior quarter. Aggregate credit card profits (after tax) for the top four issuers logged in at $2363 million for 4Q/18, compared to $2624 million for 3Q/18 and $1798 million for 4Q/17, according to figures collected by CardData.

The strong economy may not last as a long overdue recession could pop up in late 2019 or early 2020, sending late payment fees up and merchant fees down, according to analysis by RAM Research.

Avoiding Nuisance Fees

When it comes to credit card late payment fees, the best advice for consumers is to make the minimum payment as soon as statement is issued to prevent any chance of a late fee. Then make a larger payment before the next statement is issued. Some issuers may limit you to two payments per cycle. Late credit card payment fees generally run $35+ per infraction, not chump change.

As far as credit card cash advances are concerned, think thrice as there are fees based on the amount of the advance, plus you will be charged the issuer’s highest interest rate (generally around 30%) and interest is accrued immediately (no grace period). Most issuers will also limit cash advances to a percentage of the total credit line. Thieves love credit card cash advances, especially in gaming establishments, and, as a result, issuers price their costs against the risks involved, according to CardData.

Credit Card Fee Income 2018

Merchant Fees

$47.0 billion, up $800 million from 2017 (economy, consumer sentiment still strong)

Penalty Fees (Late Fees)

$11.0 billion, down $1.1 billion from 2017 (fewer late fees due to economic recovery)

Cash Advance Fees

$17.7 billion, down $12.3 billion from 2017 (similar to penalty fees down, huge job creation)

Annual Fees

$15 billion, up $500 million from 2017 (more higher quality rewards card accounts)

Enhancement Income

$9.0 billion, up $700 million from 2017 (better marketing for ancillary services)

Source: R.K. Hammer Investment Bankers