Credit card fees, penalty rates have risen, survey says - Seattle Post Intelligencer

By EILEEN ALT POWELL/nTHE ASSOCIATED PRESS

NEW YORK -- The average late fee on credit cards has soared to $28 in the United States, while penalty interest rates average 24.5 percent, according to a survey released Thursday by Consumer Action.

The San Francisco-based consumer watchdog's report came a day after the Federal Reserve Board proposed sweeping revisions of the rules governing the way consumers are notified of changes to the terms of their accounts, including the way penalty rates are applied.

Consumer Action looked at the terms of 83 cards issued by 20 banks, including the top 10 U.S. card issuers.

The average annual percentage rate was 14.53 percent, up from 12.61 percent when the survey last was done in 2005.

That largely paralleled the Fed's boost in interest rates.

Penalty fees and rates generally kick in when consumers pay their bills late, and they've risen sharply.

This year's average late fee of $28 was more than double the $13 that prevailed in 1995 and was up from $27.46 in 2005.

Some card issuers charge as much as $39 per incident, the study found.

The penalty rates, which ran as high as 32.24 percent, were up from an average of 24.23 percent in 2005 and 21.91 percent in 2004.

Linda Sherry, a Consumer Action spokeswoman, said she did not think Fed adoption of the truth-in-lending proposals would necessarily change credit card rate and fee practices.

"But I think it will make people more aware, especially of the penalty rates," Sherry said.

One of the Fed proposals would require credit card issuers to give people 45 days notice before making any changes to the terms of an account.

That would give consumers time to repair the problem or pursue other credit options.

Among the credit card provisions that have been criticized by consumer activists is "universal default," which allows a card issuer to boost a consumer's interest rate if the consumer gets into trouble on another loan.

The Consumer Action group found that in the past year, many credit card companies are saying they no longer impose universal default rate increases.

But the group found that instead, many have inserted language into their contracts allowing them to change a customer's rate "at any time for any reason."

This, Sherry said, "means credit card companies may be hiding universal default -- one of their most insidious practices -- in a different section of the credit card contract."

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CreditCards.com: Weekly Credit Card Rate Report

AUSTIN, Texas--(BUSINESS WIRE)--Average rates for instant approval credit cards edged higher this week,
potentially in response to increased default risk associated with
instant credit decisions. Rates on other popular credit card categories
tracked by CreditCards.com remained unchanged from the previous week and
are listed below:




 


 




Credit Card Rate Averages


 




 




Low Interest


11.59%




Balance Transfer


11.41%




Instant Approval


14.18%




Reward


13.72%




Cash Back


13.13%




Airline


15.07%




Business


13.95%




Student


17.88%




Bad Credit


12.81%




 




 


 

Source:







Updated: 05-03-07


 

Several major credit card companies offer instant online decisions for
their cards as a method for differentiating their products. Issuers are
able to access certain credit bureau facts in near real-time in order to
make rapid credit decisions, usually within 60 seconds. When
insufficient data is available to make an instant online decision,
issuers reserve the right to take a greater amount of time in which to
grant approval or denial of an application involving offline review.

The CreditCards.com national weekly credit card rate survey is conducted
each week using data from the leading credit card issuers in the United
States.

Introductory offer periods and actual regular interest rates can vary
depending on individual applicants’ credit
quality and issuer risk-based pricing policies.

About CreditCards.com

CreditCards.com ()
is an Internet publisher and marketing organization that operates the
leading and fastest growing online destination for consumers to search,
compare, and apply for credit cards. The company matches millions of
consumers each year with the credit card offers that best meet their
financial needs. CreditCards.com is based in Austin, Texas and was
founded in 2003.

NOTE TO EDITORS: The information contained in this release is available
for print or broadcast with attribution to CreditCards.com.