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Citigroup Inc. has started adding annual fees to some of its existing credit card accounts in one of the first such attempts by a major issuer to offset the effects of the U.S. government's crackdown on card costs and practices, reports CardLine Global sister publication American Banker. 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. Observers in other countries have made similar predictions as regulators and lawmakers apply similar pressures to issuers, which also face more defaults, higher costs and decreased revenues. Now that Citi has taken the plunge, "I expect testing of annual fees to accelerate," says John Grund, a partner at U.S.-based 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 spokesperson, says 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. Citi reportedly has informed some cardholders that they will be charged an annual fee of US$30 (21 euros) 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 U.S.-based card advisory firm R.K. Hammer. The return of the annual fee is hardly confined to the U.S. Credit cards with annual fees will become widespread in the United Kingdom by the end of 2010, predicts a recent report from London-based Auriemma Consulting Group. Indeed, Egg, a UK-based Internet bank similar to ING Direct, last month introduced the Egg Money World MasterCard, which has a monthly fee of 1 UK pound (US$1.65 or 1.16 euros). Issuers in India, perhaps including the local arm of Citibank, also are moving toward reinstating annual fees after already reducing credit limits and slowing down credit card issuance in response to rising defaults (CardLine Global, 4 June).
