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.
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Written by CREDIT