Hi y’all —
This newsletter is coming to you live from John F. Kennedy International Airport, where I’m waiting for an early-morning flight to Ohio. (I’m attending a conference this week to debut a cool new Money project.)
There’s a crying baby nearby, none of the in-seat power outlets work, and the terminal is so cold that I’m considering putting on a second sweatshirt. Attendants come over the intercom every 30 seconds to yell at people. Also, did I mention the smoothie I’m drinking cost 10 WHOLE DOLLARS?
It makes me long for private lounge access, which I’ve heard comes as a perk with some high-end credit cards. Nothing in my puny portfolio — which includes an American Express Blue Cash Preferred and a Chase Sapphire Preferred — offers that. But then again, they don’t cost me much to have. All my annual fees are under $100.
Come to think of it, why do some credit cards have annual fees?
The answer has to do with the Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act. The law, which Business Insider called “one of the most significant pieces of credit-related legislation to date,” beefed up a ton of consumer protections and “changed the landscape of the credit card market,” according to the Consumer Financial Protection Bureau.
The CARD Act altered several practices, in doing so prohibiting double-cycle billing, capping late fees and making new account-holders be at least 21. But what’s relevant for this issue is that it “pushed cards towards a more simplified fee structure,” says Kelvin Chen, senior executive vice president and head of policy at the Consumer Bankers Association.
Before the CARD Act, there was a glut of what critics called fee-harvester cards, which charged high fees but had low credit limits.
I found one example from 2007 of a card that ostensibly extended a $250 limit, but the customer was charged a $95 program free, a $29 account setup fee, a $48 annual fee and a $6 monthly fee upfront, leaving them just $72 in usable credit moments after signing up.
The CARD Act cracked down on that.
“Now, most cards generate revenue really off of just three or four revenue sources,” Chen says.
The first is interchange fees, which are paid by a merchant whenever a customer swipes their credit card there. These are percentage-based, usually between 1% and 3% off the transaction value. (BTW, if you’re interested in learning more, there’s a whole political battle happening over interchange fees — check out my 2023 piece on the Credit Card Competition Act.)
The second is from interest paid by people who carry a balance from month to month. This is credit card companies' main revenue source, which checks out: As of May, the average credit card interest rate nationwide was 21.51%, according to the St. Louis Fed.
The third is fees, a category that includes annual fees, or a specific sum a person pays a credit card issuer every year for the privilege of having their card. It's like a membership fee.
Answer: Shop around! Car insurance rates are rising, jumping almost 20% in the last year alone. That translates to an annual average cost over $1,700. There is good news, though, and it has nothing to do with the Gallaghers’ reconciliation: You may be paying too much. Comparing what other carriers have to offer is actually easy online, and it could potentially save you hundreds annually. How rock ‘n’ roll would that be?
