Penalty rates, fees on credit cards not always clear

NEW YORK — A late credit card payment will cost you. It's just not always clear how much.

Despite new reforms that require more transparent billing practices, about half of credit cards do not disclose in marketing materials the penalty interest rates customers can incur.

Penalty rates can be as high as 29.99%. That's on top of the $39 fee a late payment often triggers.
By Candice Choi, Associated Press
A study by the Pew Safe Credit Cards Project found that card issuers are complying with a new law this year that prohibits numerous deceptive practices. Previously, all card issuers tracked by Pew used at least one practice that is now illegal.

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Many major card issuers, including Chase and Capital One, disclose their penalty rates. But Bank of America does not and, because it's one of the largest card issuers, accounted for the 50% of cards in the Pew study that do not specify penalty rates.

Federal regulations only require that set penalty rates are disclosed in marketing materials.

A Bank of America spokeswoman, Betty Riess, said the company does not have a set penalty rate. Instead, accounts that are 60 days past due are flagged for review.

"It's not predetermined," she said. If Bank of America decides to hike a rate, it must provide the customer with a 45-day notice under the new law.

That 45-day notice is required for any rate hikes on new balances, even if customers are told of the penalty rate upfront. Previously, banks could automatically impose penalty rates without warning.

The new 45-day notices are intended to give cardholders a chance to stop using their cards or close their accounts.

There is another recourse from penalty fees. Under the new law, cardholders are entitled to their original rates if they make six straight on-time payments, starting from immediately after a penalty rate is imposed.

However, banks can continue imposing penalty rates indefinitely if cardholders don't start making on-time payments right away.

Other costs tied to credit cards are rising too, the Pew study found.

Cash advance and balance transfer fees rose on average from 3% of transactions to 4% since July of last year.

For cards with annual fees, the median fee increased from $50 to $59. Median interest rates also rose to between 13% to 21%, compared with 10% to 16% at the end of December 2008. Interest rates and fees at credit unions rose more moderately.

The good news for consumers is that over-the-limit fees are becoming less common, with less than 25% of cards now imposing them, versus 80% a year ago.

The Pew study analyzed 450 card offers by the largest credit card issuers in March.