What Is a Dormancy Fee?

A dormancy fee, also known as an inactivity fee ෴or inactivity charge, is a penalty imposed by a bank or other financial institution when a customer hasn't made a transaction on a particular account for a certain period of time. Dormancy fees are no longer allowed on credit cards in the United States, but can still be found on other payment cards, such as gift cards, and other types of financial accounts.

Dormancy Fees and Credit Cards

D♉ormancy fees were once one of the many fees that credit card issuers were allowed to imposඣe on their customers.

However, changes to 澳洲幸运5官方开奖结果体彩网:Regulation Z of the Truth in Lending Act outlawed them in the U.S. in 2010.

The updated rules also made a number of other changes to the law, including setting new limits on credit card 澳洲幸运5官方开奖结果体彩网:late payment fees and prohibiting issuers from imposing multiple penalty fees based on a single late payment.

In addition to putting the end to an annoying penalty, the current rules on dormancy fees made it easier for consumers to build and maintain their 澳洲幸运5官方开奖结果体彩网:credit scores by keeping accounts open even if they rarely or never use that particula🌠r card.

One of the major factors that's used in calculating credit scores is an individual's 澳洲幸运5官方开奖结果体彩网:credit utilization ratio. That's how much 澳洲幸运5官方开奖结果体彩网:revolving debt (such as credit cards) they have outstanding at a given point as a percentage of all the credit they have available to them. Lenders generally like to see a credit utilization ratio of 30% or less, and the lower, the better. So keeping a credit account open—and preserving its available credܫit line—ꦓcan be advantageous.

Similarly, credit scoring models look at the age of a person's credit accounts, with older being better. So maintaining longtime accounts can be beneficial.

Card issuers still have the right to close a credit card account if it has been inactive for a period of time or for any other reason. One way consumers can prevent this from happening is to make at least a small charge periodically on each of their cards. However it's often in issuers' best interest to keep an account open in case the customer resumes using it and they can start collecting merchant 澳洲幸运5官方开奖结果体彩网:transaction fees and interest again.

Dormancy Fees on Gift and Prepaid Cards

The dormancy fee rules on gift cards, gift certificates, and general purpose 📖prepaid cards are not quite as consumer friendly as those for credit cards, although they do provide some protecti🅷ons.

Specifically, issuers cannot impose a penalty until the card or certificate has been inactive for at least one year.

In addition, the Consumer Financial Protection Bureau says, the card or certificate must "clearly and conspicuously" state that it has a dormancy fee, how much that fee is, and how often it may be imposed. Issuers aren't allowed to charge more than one dormancy fee in a calendar month.

Dormancy Fees on Bank, Credit Uniღon, and Brokergage Accounts

Under federal law, both banks and credit unions can impose dormancy fees on inactive accounts, but they must disclose them when the account is opened.

These financial institutions have some ꦿdiscretion in deciding when an account is inactive, although the individual states, which regulate certain kinds of banks and credit unions, can also have their own rules.

Customer accounts that are inactive for a period of time may also be at risk of 澳洲幸运5官方开奖结果体彩网:escheatment,🧸 a process in which assets considered to have been abandoned are tu🔥rned over to the state. Again, these rules can vary from one state to another.

Brokerage firms can also impose inactivity fees on account holders who have not conducted any transactions for a certain period.

The Bottom Line

While dormancy fees are no longer🐓 allowed on credit cards, they still exist on other types of financial aℱccounts. You can often avoid them—and other types of fees—by shopping around.