Credit Hack: Getting Fees Waived On High Annual Fee Cards

Sometimes, it pays to know the letter of the law. In this case, if you’re in the market for a credit card with a hefty annual fee, you may be able to save yourself a chunk of change. As part of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), a provision was added to the Truth in Lending Act that was intended to combat so-called “fee harvester cards” — cards that target subprime borrowers and charge excessively high upfront fees, coupled with low credit limits.

As it turns out, those with excellent credit can also benefit from this rule. In particular, in at least one instance, when applying for a specific premium credit card with a high annual fee, it’s possible to get the annual fee waived for the first year, though there are some risks involved.

Background
In 2009, the CARD Act added Truth in Lending Act section 127(n)(1), which states that:

if the terms of a credit card account under an open end consumer credit plan require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened,” then “no payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.”

In short, your first year’s annual fee can’t be more than 25% of the credit limit on your credit card.

How can this knowledge be profitably applied?
The one example where this knowledge has been applied, so far, is the Ritz-Carlton Rewards Credit Card, which has an annual fee of $395. Now, the Ritz-Carlton credit card is a premium travel credit card, and Chase would never approve someone for the card with a credit limit of under $1,500, which is about what it would take in order to run afoul of the language in the Truth in Lending Act.

However, as initially reported on the MyFico forums, after a cardholder reallocated their credit lines so that only a $1,000 credit limit remained on their Ritz-Carlton card, Chase refunded the annual fee. Since then, there have been many successful reports where the fee has also been refunded.

Basically, it was discovered that if you voluntarily reduce your credit limit by reallocating your credit line to $1500 or less — by either calling Chase or preferably, through sending a Secure Message — Chase will automatically refund your annual fee, but you get to keep your card and all of your benefits. This appears to happen automatically without further action on the cardholder’s part.

In theory, this should also work on any Chase credit card with a really high annual fee, though there have not been any reported attempts yet. Part of the reason may be that introductory offers for many of these credit cards waive the first year’s annual fee anyway, and the law only pertains to the first year’s fees.

Given that you’re basically gaming the system with this approach, however, you’ll have to gauge whether it’s worth it’s worth possibly getting your account closed, and/or damaging your relationship with Chase, in order to save the cost of the annual fee.