Big banks aim fees at those who avoid debt, pay bills on time

Update (at bottom): Senator Dodd calls for credit card rate freeze until new rules take effect

Did you pay your bills on time this month? Avoided taking on unnecessary debt? Well, there's a fee for that.

Anticipating the implementation of the Credit Card Accountability, Responsibility and Disclosure Act in February of next year, big banks are stepping up their aggressive treatment of those who hold cards that may be deemed too generous, or those who are studious in making payments.

Specifically, if a customer receives significant benefits from their credit card -- like frequent flier miles or other incentives -- but still manages to pay off their balance at the end of every month, their likelihood of being charged extra is going up.

"Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99," USA Today reported. "The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected."

Additionally, Citibank introduced a new fee in August targeting customers who do not charge over $2,400 in a year. For not leaning on debt, account holders could be charged up to $90. The bank is also handing skyrocketing rates to customers ahead of the new credit card regulations -- including customers who have never carried balances month to month.

"Basically, if there's money to be made via some new fee or strong-arm practice, the banks have done it," Los Angeles Times writer David Lazarus summarized. "Tony Soprano and his crew pretty much operated the same way."

Ed Myska, an executive vice president with El Segundo's Bank of Manhattan, told the Times that even with his sterling credit history, he too was a victim of Citibank's rates, with his own card jumping up to 30 percent interest.

"Fortunately, if you've paid off your balance on time every month, you probably have a good credit score," USA Today noted. "And when you have good credit, you have more choices."

The San Francisco Chronicle on Monday carried a number of useful tips for credit card customers.

First, shop around for a new card. Cardratings.com lets you search for cards based on rewards still offered, frequent-flyer miles, low interest or balance transfers.

Second, cancel your credit cards and live without them. Since one of the side effects of the pending Credit Card Accountability, Responsibility and Disclosure Act has been a reduced number of premiums on credit cards (i.e. fewer "points," lower rebates on balances, a more difficult time cashing in frequent-flyer miles) and since deadbeats are now fair game for the fee racket, it might make sense to go all-cash, all the time. Most bank debit cards are associated with Visa or Mastercard, so you'll be able to use them for e-commerce. And yeah, credit cards can be convenient for travel, but you don't necessarily need a credit card to rent a car.

Third, realize that credit history is largely based on your behavior as a borrower -- i.e. the length of time banks have been extending credit to you, how timely your payback history is, and how much you've borrowed versus how much you could borrow. So you can always work to build up your credit using a) a checking and savings account that you keep in good standing (no overdrafts!), and b) a small consumer loan that you pay back regularly and on-time. An example of this type of loan: a car loan, a student loan, or a consumer loan through your bank.

Senator Chris Dodd (D-Conn.), seemingly in response to reports of credit card companies hiking rates on otherwise responsible customers, introduced legislation Monday that would temporarily freeze rate hikes and fees until the new rules take effect in late February.

"Senator Dodd, the chairman of the Senate Banking Committee, said his bill was necessary because banks were raising rates 'to squeeze customers,'" The New York Times reported.

“At a time when families are struggling to make ends meet, jacked-up rates can quickly create crushing debt,” Dodd reportedly said. “People need to be responsible with their money, but they shouldn’t be taken to the cleaners by outrageous fees.”