Credit Card Interest Rate too High? Try All the Hidden Fees!

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Last year, banks collected over $20 billion from credit card penalty fees.

Because of industry consolidation, mergers and acquisitions, about 80% of outstanding credit card debt belong to the hands of the top six issuers — Bank of America, Chase, Citigroup, American Express, Capital One and Discover.

If you think they are making a killing with the up-to-30% interest rates, you should see all the hidden fees associated to owning a credit card:

Late Fees
Over the Limit fees
Cash-advance fees
Currency-conversion fees
Rush Delivery Fees
Copy of Billing statement fees

Late Fees

Late fees make up about 70% of the industry’s penalty-fee income, Last year, 1 in 3 active credit card accounts was charged a late fee.

As well, read the fine print: banks are setting a cut- off time on the payment due date.

One-third of banks surveyed last year required payments to be received before a specified hour on the due date! Their justification is to to give the bank "sufficient" time to process payments made that day.

Also, if you own a “low rate” or “0% interest” credit card from a promotion, one late fee will discontinue that promotion and out you in the same bracket as the other people in debt!

Over-the-Limit Fees

If you go over your credit limit by 1 cent, you can expect to face a fee of up to $39.

This one irks me. If you go over your credit limit, why don’t they refuse the transaction?

Their justification behind these fees is to discourage consumers from exceeding their credit limit and raising their risk of default.

You have to watch out for pre-authorized bill payments to your credit card.

At least the consumer should be aware if they go over, and have a choice in the matter. Lets say you are at a restaurant and you don’t want the embarrassment of being over your limit and getting denied.

Cash-Advance Fees

Most banks are also charging a 3% fee for a cash advance. What makes matters more confusing (and transparent on your credit card bill) is a spectrum of interest rates, such as one rate for purchases and one for cash advances.

Currency-Conversion Fees

It’s bad enough the US dollar is well below the Euro. Some banks are also charging a 3% fee for currency conversions. On $1000, that’s 30 bucks!

Like the cash advance fee, the maximum fee for such transactions was $50 to $75. Most banks have lifted the cap on the fees, producing more revenue for them.

Rush Delivery Fees

To obtain a copy of a billing statement, I’ve seen fees from $2 to $13 per item! These silly fees are aimed at people who have good credit, pay their bill in full every month (wouldn’t that be nice?) and are just too busy to check their statement in detail before paying.

These are the same people who use automated pre-authorized checking for automatic bill payments.

Copy of Billing statement fees

Lets say you are on vacation, or you are about to go on vacation and need your credit card delivered fast. For a rush delivery of a credit card, you can expect to pay anywhere from $10 to $20.

Conclusion

How high can credit card rates and fees go? Most large banks can charge as much as they want. A Supreme Court decision in the late 1970s required banks to follow only the usury laws of the state where they have credit card operations — not the laws of each state where they issue cards.

Banks defend themselves by saying they are charging high interest rates to protect you, the consumer, by preventing you to overextend yourself. Ha!

Some banks moved their credit card units to other states, such as Delaware and South Dakota, with no caps on rates.

For example, Wells Fargo Bank may be registered in California, but their Credit Card subsidiary is registered in Delaware!

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October 15 2009 12:07 am | Credit Card and Credit Card Rate and Money Management

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