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Credit card fees soar again
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August 18, 1998: 3:20 p.m. ET
Penalty fees increase as credit card companies fight to keep their profits
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NEW YORK - Be careful with your credit card. Revenue-hungry card companies have recently increased late fees and over-the-limit penalties to as high as $25.
"Those fees are outrageous," said Marc Eisenson, co-author of "Debt Consolidation 101: Strategies for Saving Money and Paying Off Your Debts Faster." "It doesn't cost your credit card company $25 if your payment shows up a day late."
Some companies add insult to financial injury by slapping customers with penalty interest rates -- some as high as 26 percent -- on top of late and over-the-limit fees.
Experts say penalty rates and fees have been inching up for years and the reason is simple: Money.
"Profitability in the credit card industry has been sloping downward for some time," said Stuart Feldstein, president of Hackettstown, N.J.-based SMR Research Corp. "They need to make more money. These are not non-profit companies."
Personal bankruptcies and charge-offs -- balances that are 30 days past due -- are on the rise. Increased competition among issuers has bumped up the cost of landing new customers. In addition, more people are becoming what credit card companies call "convenience users," people who pay off their balances each month. Lower balances mean fewer finance charges paid to the credit card companies.
"The cost is going up. The revenue is going down," said Peter Davidson, executive vice president at Speer & Associates in Atlanta. "So you have to do something."
What they're doing
"Something" includes adding annual fees, upping the interest rate charged on cash advances and shortening grace periods from 25 to 20 days, thereby costing the customer an extra five days worth of interest. Increasing penalty rates and fees are especially widespread because the hike can be implemented with little customer resistance.
"There (are) very few cardholders that switch cards because the late fee is too high," Davidson said.
As penalty rates and fees inch higher, consumer experts are emphasizing the importance of paying credit card bills on time, every time. Other advice from the experts: Keep balances down and send in payments as early as possible. Waiting until the end of the month could be costly.
"If it's due on the second or the third, and if you typically pay bills on the 29th, you have to be realistic that it could get there late," said Linda Sherry, editorial director of San Francisco, Calif.-based Consumer Action.
Don't be afraid to call the credit card company's 800 number with questions or problems. For example, ask if the due date can be adjusted. And don't think you can't dispute late charges when a payment gets lost in the mail.
"Credit card companies want to keep you as a customer," Eisenson said. "If the first person who answers the phone isn't helpful, their supervisor or their supervisor's supervisor might be."
Experts also say you can avoid surprises by reading the fine print on all credit card statements and new offers.
"It's our responsibility to protect ourselves," Eisenson said. "If we're careful they won't get us with any of this stuff." 
--by Bank Rate Monitor for CNNfn
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