Card executives and industry members have predicted a widespread return of the annual fee, currently reserved for rewards-rich cards, since President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act in May.
Citi's new charge, which kicks in if a cardholder does not spend enough, is one of many different annual fee experiments that industry members anticipate in the next six months.
Now that Citi has taken the plunge, "I expect testing of annual fees to accelerate," said John Grund, a partner at First Annapolis Consulting Inc. "It will be gradual, and they will become more prevalent, but they might not be on every product."
Samuel Wang, a Citi spokesman, said by e-mail on Wednesday that the company has "adjusted pricing and card terms for some customers as part of our regular account reviews. … As part of this change in terms, a small number of Citi customers may be notified of an annual fee."
Wang, who cited "the dramatically higher cost of doing business in our industry," would not provide further details.
But according to posts on several different consumer blogs and online discussion boards this month, including Bargaineering.com, Citi has been informing some of its cardholders that they will be charged an annual fee of $30 to $90 unless they spend a certain amount per year, usually $2,400.
Annual fees, once common, largely disappeared in the 1990s, and last year accounted for only 4%, or $3 billion, of issuers' total fee income, according to the card advisory firm R.K. Hammer.
But Robert Hammer, the Thousand Oaks, Calif., firm's chief executive, said Thursday that he expects that number to "rise substantially" in the next six months, and predicted that by 2010 issuers will earn at least $9 billion from annual fees.
"It's a necessary cost of doing business" in light of the law's restrictions on interest rates and other pricing, he said. "The old business model's been pretty much decimated."
But as more issuers look to introduce annual fees, Grund cautioned that "not everyone's going to be able to get away with it."
"There's a punitive use of annual fees — 'I'm only going to retain you as a customer if it's under profitable terms' — and then there's a discriminatory use of annual fees — 'To achieve certain rewards, you're going to have to pay up,' " he said.
"On the most profitable segments, you don't want to spur attrition and you don't want to 'fire' the customers, so that annual fee had better come with better rewards."
JPMorgan Chase & Co. has already tested both the carrot and stick methods to some extent.
It restructured its rewards program this year, giving its Freedom cardholders the choice between fewer rewards (on more types of transactions) or paying a $30 annual fee for an "upgraded" program.
Last year, before the law was enacted, JPMorgan Chase attempted to add a $10 monthly fee to some accounts, but after cardholder protests and lawsuits, it reversed course in March and refunded the fees. (A spokeswoman did not return calls about its current annual fee plans.)
Bank of America Corp., Discover Financial Services and American Express Co., which already charges annual fees on many of its credit and charge cards, all said they had not added any annual fees to their cards or existing accounts since May, but would not comment on future plans.
