01/13/2011 04:42 pm ET Updated May 25, 2011

Credit Card Fees and Your Subconscious Mind

In order for credit card companies to continue making the kind of revenue they're used to, they have typically turned to higher penalty fees. There has been a great increase in popularity over the years for high penalty fees that are meant to catch users off guard -- and this is likely caused by competition. In order to win this battle of the fees, companies are figuring out what fees consumers are mentally acknowledging and which they are subconsciously blocking. So if a company is better than its competitors at defining this difference, they are able to make their credit cards seem more user-friendly, without interrupting their flow of revenue.

An Outlook on Climbing Fees

Back in 2004, an analysis was published by the Federal Reserve Bank of Chicago, which showed the sources of income for various banks. In 1970, it showed that 80 percent of banks' earnings were from traditional interest-bearing income. This has since reduced down to 60 percent by 2003. This seems to imply that there has been a 20 percent shift in income from interest to fees. In the past, we have often attacked overdraft fees for the ways they gouge debit users, but similar fees are also charged for credit and charge cards.

The Usual Fees Tied to Credit Cards

As credit card companies have traditionally enjoyed the freedom to increase and modify their fees as they please, customers have had to bear the brunt. You will find that the most common fees that consumers are paying, as stated in the 2008 Harvard University study, are late fees, cash advance charges and overdraft fees. In this study, it also shows the difference between indirect and direct penalty fees. When being charged direct fees, users will find them on their credit card accounts, unlike with indirect fees like late or missed payments (which cause hikes in interest rates). Direct fees are the main focus of this study.

Tricky Discounts: 0% Intro APRs and Balance Transfer Rates

A lot of people are drawn into these types of discounts without thinking what happens after they cease. David Labison from Harvard discusses hyperbolic discounting and our need to be gratified instantly. In a survey that asked people whether they'd want to eat fruit or chocolate, there were great differences in answers that depended on when the participants were eating them. Seventy-four percent of the individuals chose to consume fruit the next week and 70 percent of the individuals chose to consume chocolate that day.

This shows our desire for instant gratification over logical decision-making, which brings us to why we go for 0% APR offers on balance transfer credit cards. We immediately jump for this opportunity because we don't have to pay anything right away, but we end up paying a 5 percent upfront fee. Or we sign up for 1,000 bonus miles on that new rewards credit card and end up paying a $100 annual fee.

How to Lower Your Chances of Messing Up: Late Fees and Overlimit Fees

Just think, if a credit card company has the option of marketing a $10 late fee and $50 annual fee or a $0 annual fee and $39 late fee, but they all generate the same amount of revenue, which would they choose? Obviously the $0 annual fee. Our inner apes tempt us to either not read the fine print out of laziness or convince ourselves that we won't make any late payments.

Since competition is the biggest driver of strategy for these companies, if one does something, the others will do the same to keep from losing their customers.

The Learning Curve for Credit Card Customers

Doing an analysis of credit card consumers gives us a better insight of their habits and how they come to understand the behaviors of credit usage. In the Harvard study, it shows that consumers learn these behaviors through negative reinforcement. For instance, in the study it shows that people are less likely to make a late payment twice. The probability of them repeating an incurred fee is cut by 44 percent. The fees for new credit cards are around $15 monthly, but then drop by 75 percent over a 4-year period, which shows that credit card holders are learning over the course of time. Their learning curve for credit use comes from knowing what actions cause penalty fees.

In conclusion, banks know that people screw up and are always looking for new credit users to milk fees from. So if you're a credit card newbie, beware!