Why Credit Card Fees Won’t Go Up

The bankers make it sound like a certainty: New rules limiting high credit-card interest rates and other usurious practices are going to cut into bank revenues, so they’ll have to make up the difference somewhere. That means fees have to rise for everybody else. It’s just a truism, see, the way every action in Newtonian physics produces an equal and opposite reaction.

A front-page New York Times article recently described some new measures banks are considering to boost sagging revenue: Adding back annual fees, charging interest from the moment you make a purchase, curtailing reward programs, and hiking late charges and penalty fees. Credit card users who carry a balance are used to such strictures, but now the credit-card companies are hoping to force them on the 50 million Americans who pay off their balances every month.

I can’t wait to watch them try.

[See the best and worst bailed-out banks.]

Consumers who run up big credit-card balances and take a long time to pay them off are at the mercy of their lenders, which leaves them virtually no leverage. Despite the new rules, banks will probably still find ways to dun customers who run up debt and limit their own options. But consumers who stay out of debt get to call the shots. And they’re the ones who will decide whether to pay new credit card fees. Hmmm. I wonder what they’ll choose.

Thirty or 50 years ago, captive consumers largely did what big corporations told them to do. The consumer economy was relatively new, and big companies offering glittering products and convenient services seemed benign. Many of them actually helped make people’s lives better.

[See why the banks still aren’t fixed.]

But that patriarchal setup ended with the advent of the Internet, which has generated intense competition for practically everything and allowed consumers to shop for the lowest price without leaving home. Credit card companies who think they can keep their customers while hiking fees might want to study the airline industry, which has failed for three decades to enact meaningful fare increases—or even make a profit. Every time one airline tries to raise fares, another carrier tries to grab market share by launching a sale. And new discount airlines pop up all the time, driving prices even lower. It’s true that new fees for meals and checked bags have stuck, but consumers have reacted by bringing their own food and stuffing everything into a bulging carry-on.

Downloaded any music lately? The music industry fought a mighty battle to prevent you from doing that, because they figured they’d make more money by resisting technology and forcing you into the store to buy the whole CD. Apple had a different idea, which actually benefitted consumers. We all know who won.

[See 5 signs the bailouts are getting better.]

My industry, the mainstream media, is gagging as it learns many of the same lessons. We’ve been offering most of our content for free on the Internet for the last 10 years, and it turns out that you can’t run a business very effectively if you give away your primary product. Newspapers have gone out of business trying to get online readers to pay for their news. It hasn’t worked because once people get used to free stuff, it’s nearly impossible to convince them they should start paying for it. Especially if similar stuff is free someplace else, and you don’t even have to leave your chair to find it. To survive as a media provider, you have to devise innovative new products and services that add value and give readers something they can’t find everyplace else.

But credit cards are special, I guess. So the credit card companies think that smart consumers who haven’t paid an annual fee in 10 years are going to say, ‘sure, no problem, how much would you like me to cough up?’ And shoppers who are fanatical about finding the lowest price aren’t going to mind paying interest for a month, until they pay off their monthly bill. And there aren’t any other banks or credit unions–or WalMarts, for that matter–who would be happy to jump into this business and offer consumers a better deal. And nobody will come up with the idea of paying with a debit card–or cash!–to avoid needless credit card fees.

[See 6 surprises from the bank stress tests.]

Here’s another new idea: Maybe banks are going to make less money on credit cards. And maybe their fortunes will improve when they get with the times and offer consumers something fresh and useful.