In order to offset record delinquencies and rising charge-offs, credit card companies are continuing to hike up penalties and, in many cases, double fee amounts for certain cardholders, reports USA Today (â€śBank Credit Card Fees Keep Going Up,â€ť March 15, 2009).
By the end of 2008, almost 6 percent of all credit card accounts were at least 30 days late, the highest percentage of delinquent accounts the Federal Reserve has recorded since it began tracking credit card defaults in 1991.
These defaults are forcing card issuers to incur significant expenses both at the time of collection on delinquent accounts and later when the companies have to write off these accounts due to non-payment. To recover a portion of their projected losses before they occur, these companies are choosing to pass the buck to at-risk cardholders through higher fees and penalties.
Consumers may not see relief for penalty rates or for late or missed payments until 2010 when new Federal regulations go into effect that will alter the way credit card companies do business, The Washington Post reports (â€śAccelerating Debt,â€ť March 22, 2009).
Currently, credit card issuers are getting away with charging an average late-payment penalty rate of almost 27 percent, according to a 2008 survey by advocacy group Consumer Action, and may end up collecting as much as $21 billion from cardholders as a result of these higher penalty fees, estimates Robert Hammer, chairman of the consulting firm R.K. Hammer.
Elevated fees â€śare a recognition of risk going up,â€ť Hammer says. Financial institutions â€śare not going to watch their costs go up and take no action.â€ť
Fees Double For Some
Earlier this year, American Express raised its late fees from $29 to $39 for corporate cardholders who were 45 days late on their payments, USA Today reports.
Wells Fargo customers who withdraw funds from their credit cards inside the bank branch have seen their fees double from $10 to $20, and likewise those who withdraw credit card funds from the Wells Fargo ATM have seen their fees double from $5 to $10.
In January, JPMorgan Chase levied a $10-a-month fee on about 400,000 cardholders who had carried a high balance for more than two years and who had made little effort to pay it off. Minimum payment requirements for these customers jumped from 2 percent of their account balance to 5 percent, forcing cardholders to pay more than double what they owe on their accounts each month.
â€ś[Card issuers] have been very much damaged by this economic downturn and tightening of credit and all the losses that their banks have faced,â€ť said Bill Hardekopf, chief executive of LowCards.com, a credit card review site. â€śIf you as a consumer do anything to increase your risk, you will probably very quickly be hit.â€ť
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