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Study: credit cards pricier
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November 6, 1998: 9:09 a.m. ET
Consumer group survey finds late fees are on the rise, as grace periods shrink
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NEW YORK (CNN) - Banks issuing credit cards have devised new ways to keep their profits up and keep consumers in debt longer, according to a study by a consumer group.
According to a survey conducted by Consumer Action in August and September, late fees and "over the limit" fees have gone up and grace period is shorter than before.
The interest rate an average financial institution charges its customers ranges anywhere from 7.99 percent to 21.4 percent a year. The survey of 117 credit cards from 74 banks showed that late fees have gone up nearly 75 percent since 1995.
"If you make a couple of late payments on a new card with an introductory rate," commented Ken McEldowney, CA's executive director, "your annual percentage rate could jump as much as 15 percentage points."
Stephen Brobeck, executive director of the Consumer Federation of America, said banks' profitability rates have plummeted from four percent in the early 1990s to just one percent in 1998.
Brobeck blames it squarely on banks offering credits to people who may not be worthy of credits. And when the banks lose money, they are trying to make it up by hiking different fees charged to consumers.
Both CA and CFA urged Americans to pay off balances on their credit cards so that no late fee or high interest is levied on the account.
Some banks are also shortening grace periods they used to offer. Brobeck said sometimes the grace period is reduced to 20 days or less and if a card holder fails to send in the payment on time, the banks have the opportunity to slap a late fee.
Both the groups urged Congress to pass a law which would compel credit card issuers to indicate on the monthly statements how long it would take the card holders to pay off their balances, what the total cost would be while they make minimum payments.
The American Bankers Association took issue with the study's findings, emphasizing that customers have an enormous amount of choice when it comes to credit cards.
"To find the right card, consumers can choose from thousands of products created by more than 6,000 card issuers," Donald Ogilvie, the organization's executive vice president said. "The current credit card environment gives them more and cheaper options than ever."
Ogilvie said annual fees are almost non-existent and interest rates have dropped on standard cards.
"Consumers can find fixed-interest rates in the single digits. And, promotional rates are as low as they have ever been, ranging from 0 to 3.9 percent," he said.
Ogilvie emphasized that most fees are avoidable.
"At least, nine out 10 people skip fees by paying their accounts on time," said Ogilvie, adding 96 percent of all accounts are paid on time, according to the ABA Consumer Credit Delinquency Board. 
-- by staff writers Dave Adhicary and Nicole Jacoby
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