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The
annual fee, or membership fee, is an amount
charge card companies levy for the right to
use or carry their card. This fee is payable
whether you actually use the card during the year
or not. Annual fees range from an average low of
$25 to as much as $100 or more.
Annual fees were first popularized by prestige
charge cards such as
American Express and Diner’s Club. These
annual charges were called Membership Fees. The
charge card companies justified these fees because
card holders were required to pay their balances
in full every month and the companies earned no
interest from the balances due.
The annual fee made the leap from club cards to
the ordinary bank card in 1980 after the U.S.
Government imposed a temporary moratorium on the
solicitation of new customers for bank card
companies. This was done in the hopes of cutting
runaway inflation. The card issuers saw this as a
chance to earn more money from their existing
customer base who suddenly found themselves
without any options thanks to the hastily passed
government initiative.
After the moratorium was lifted, card users left
the fee in place with a justification that
annual fees kept
interest rates low because it provided a way
for the banks to offset losses from fraud and the
rising number of personal bankruptcy claims. There
was little outcry from the public and business
went on as usual.
The first sign of trouble on the horizon came in
1990 when long-distance giant AT&T (American
Telephone and Telegraph) entered the
credit card industry with the hopes of
offsetting their declining long distance revenues.
Looking to raise the visibility of their new card
in an already crowded marketplace, AT&T made a big
advertising splash with their “No Annual Fee
Credit Card!”
The response from consumers was overwhelming and
the panic spread quickly through competing banks
that were seeing their long-time credit card
customers defect to upstart AT&T. That one
incident, which bankers still call “The Big
Scare”, marked the beginning of the end of the
annual fee for most people.
Today, American Express still charges their
membership fees although some of their
interest-bearing products come fee-free. Most
banks issue fee-free
credit cards to their customers with high
credit scores and save the fee-based offers
for lower scoring customers and customers with
scores so low that they can only qualify for
secured cards.
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