Chase adds fee for customers with low promotional rates

— -- Cash-strapped consumers can't seem to get a break from high credit card fees and rates.

In the latest fee rolled out by a bank, JPMorgan Chase, the nation's largest card issuer, has begun charging hundreds of thousands of borrowers a $10-a-month, or $120-a-year, fee. Industry watchers say the fee is unusual because of its size but also because Chase is adding it to borrowers' monthly balances, where it accrues interest. The bank is also raising the same consumers' minimum payments to 5% from 2%.

The change affects consumers with low promotional rates who have carried a large balance for more than two years and made little progress paying it off, says spokeswoman Stephanie Jacobson.

Curtis Arnold, founder of CardRatings.com, who was affected by the new policy, says he fears other banks will soon impose similar policies. The past year has seen a bevy of interest rate or fee increases by major banks including Citibank, Bank of America and Washington Mutual, now a part of Chase.

"It is a major problem, as families watch their debt pile up during this economic crisis, that people always have to navigate these sorts of tricks and traps," said Sen. Robert Menendez, D-N.J., who sponsored a bill to crack down on such practices.

Toxic assets have threatened banks' financial health, requiring an unprecedented government bailout to stimulate bank lending and consumer spending. Some banks — fearful that consumers are becoming riskier to lend to — have stepped up increases in credit card rates and fees to raise cash.

Jacobson said Chase is a "responsible, careful" lender and when necessary, changes card terms due to borrower risk, market conditions or funding costs. The new policy affects less than ½ of 1%, or 400,000, of its credit card accounts, she says.

Consumers who called Chase about the new policy were given a choice between a higher interest rate on the promotional balance — 7.99% — or the higher minimum payment and the $120 annual fee. Linda Sherry, director of national priorities at Consumer Action, says consumers should be given a chance to opt out of any new card policy and pay off the balance on the old terms.