BOSTON (CBS) — The intent of the credit card reform law is pretty clear. It is supposed to protect consumers from getting taken advantage of by big banks.
Now some consumers, even those in good standing, believe they are being victimized in a new way.
Since the onset of the recession a few years ago, many shoppers put their credit cards away as they sought to reign in spending.
That’s been bad for business for the banks. Combine that with the restrictions on fees and high interest rates because of the new law and the banks say they are feeling it on their bottom line.
One of the fees that is no longer allowed is called an inactivity fee. This was something banks charged to customers who had a card, but were not using it very frequently. Now some banks are cancelling those cards.
It happened to Kevin Hicks on a card he had from Wells Fargo for a dozen years.
WBZ-TV’s Paula Ebben reports.
The consequences for Hicks were pretty harsh. Because of the way credit scores are calculated, Hicks lost 60 points on his score.
Credit agencies like to see cards held for long periods of time, and to see them have an available balance.
“My credit history with them was 12 years,” said Hicks. “Once they cancel the card, the system looks at your next card which is open. That’s only four years.”
Edgar Dworksy of Consumerworld.org further explained, “If you’ve had a card for 10 years, that is more valuable to have in your wallet if you will, from your credit score’s perspective than one you just got six months ago.”
Dworsky isn’t surprised some banks are dropping these infrequently used accounts. “I think the banks want to get rid of dead wood in their credit portfolios. You are not doing the bank any favors having a credit card that you don’t use. It’s beneficial to you, but it’s not beneficial to the bank. So I think you will either see more accounts being closed or more annual fees being imposed on those inactive accounts.”
Banks must give 45 days notice before closing an account, but that means consumers have to find rules and notifications in all the fine print included with the statement. Hicks said he never saw such a notice for his account.
The other defense is actually a good offense. “Use the card to show to show that you are at least a semi-active customer, and you will also help avoid the annual fee and also avoid having the account closed for inactivity.”
When asked about Kevin Hicks account, Wells Fargo said this practice is standard for the banking industry and nothing new.
If you get a cancellation notice, you can try to call the bank and have the account re-instated. It doesn’t always work, but Dworksky said it’s worth a try.