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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Credit Card Mergers Do Not Affect Card Usage, Says Cardbeat

WESTBURY, N.Y.--(BUSINESS WIRE)--In the past few years, the credit card industry has witnessed landmark
mergers between issuers such as Bank of America and MBNA, JPMorgan Chase
and Bank One, and Barclays and Juniper Bank, among numerous others.
Two-thirds of cardholders whose issuers have been a part of a merger
have not changed the ways they use their credit cards post-merger,
according to research recently published in Cardbeat®,
the syndicated market research report by Auriemma Consulting Group (ACG).

“These consumers were pleased with the
customer service, card pricing and rewards of their credit cards, and
chose to continue using them because the products and features did not
change after the merger,” says Megan
Bramlette, managing editor of Cardbeat.

Overall, consumers are neutral on bank mergers, with 68% expecting
little change to their opinion of their credit card company if their
card issuer was bought or sold.

“Consumers care less about the bank that
issues their card and monthly statements than the benefits they receive
from that relationship,” Bramlette says.
Falloff in activity occurs when card rewards are not as rich post-merger
as they were before, or when interest rates and account fees on the
portfolio rise.

“Merging banks need to consider how consumers
will react to their products post-merger,” she
continues. “Our research shows that most
consumers are confident about the ongoing independence of their current
credit card issuers and have made it clear that they will remain loyal,
even after a merger, as long as cardholder benefits and service levels
remain the same.”

The information in this release includes data from 401 credit card users
surveyed in February 2007. The findings were originally published in the
February 2007 issue of Cardbeat.

ACG is a management consulting firm in the payments and lending
industry. Cardbeat is a syndicated market research study from ACG that
provides insight into how consumer perceptions impact credit card
acquisition and usage.