The days of routinely using one credit card to pay off a balance on another have come to a close. JPMorgan is leading the way with the highest transfer fees of any of the major card companies.

Please consider JPMorgan Charges 5% on Credit-Card Balance Transfers.

JPMorgan Chase & Co. is raising some balance-transfer fees on credit cards to 5 percent, the highest among the nation’s largest banks, citing increasing regulations and costs after the U.S. put new curbs on the industry.

JPMorgan, the biggest credit-card issuer, disclosed the increase in a notice mailed to customers this month that referred to “new federal regulations.” The New York-based lender starts charging more in August, just as the law designed to curb interest-rate increases, fees and marketing practices begins to take effect.

The credit-card law President Barack Obama signed May 22 prompted warnings from industry executives that they’d be forced to raise fees, curtail credit and restrict consumer rewards. Hearings are scheduled today in Congress on Obama’s proposed Consumer Financial Protection Agency, which would have authority over increases like the one JPMorgan is planning, House Financial Services Committee Chairman Barney Frank said.

“What Chase is doing is strengthening the argument for the new entity,” Frank, a Massachusetts Democrat, said in an interview today before the hearings. Banks should be able to impose fees to cover their costs, not to create a “new profit center,” he said.

The rate increase at JPMorgan also affects cash advances, and fixed rates will become variable, the notice said. The bank didn’t specify the current average fee for balance transfers, and JPMorgan spokesman Paul Hartwick declined to say how many customers are affected. The notice says JPMorgan may choose to offer a lower transfer fee; Hartwick declined to elaborate on how customers might qualify.

JPMorgan’s 5 percent fee tops the 4 percent that Bank of America Corp. implemented June 1, citing increasing costs. Bank of America ranks third by cards outstanding, according to industry newsletter the Nilson Report.

“This is the highest balance-transfer fee in the industry,” said Bill Hardekopf, chief executive officer of LowCards.com, a Birmingham, Alabama research firm. “It is setting a new precedent that I’m afraid other issuers may follow.”

Discover Financial Services Chief Executive Officer David Nelms said last week his Riverwoods, Illinois-based credit-card company will pull back “dramatically” on balance transfers. Nelms told analysts during a conference call the federal law would have “unintended consequences” for customers that might include fewer offers for balance transfers at discounted rates, and that the initial low “teaser” rate might last as little as six months. Some card issuers have been offering zero percent on balance transfers that last a year or more.

A 5% credit card transfer fee seems rather steep, but it may depend on what rate one is transferring from and what rate one is getting. The concern might be transferring a large balance only to see the new card issuer raise rates. However, universal default has been eliminated, so banks will not be able to raise rates at will.

I do know some who were taking advantage of low rates, especially cash at 0% offers, by maxing out the account at 0% then depositing the money in a bank earning interest, then paying back the loan before interest accrues on the card. To me it was not worth the hassle, but for some it was. Regardless, that’s another practice that’s ending.

The moral of the story starting August when the new law goes into effect is, if you have a low rate, don’t miss payments and you can keep it. Better yet, don’t carry a balance month to month and you will not even care what the rate is.

Mike “Mish” Shedlock
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