Credit card fees getting bigger, harder to detect
Credit card fees are escalating, and it's easier than ever to get tripped up by them.
Fees are no longer just a problem for habitual deadbeats. Shrinking billing cycles and stricter payment deadlines mean even conscientious bill payers are being hit with late fees and penalty rates.
The result: Last year the industry took in $43 billion in fee income, up from $39 billion in 2002, according to R.K. Hammer Investment Bankers. Fees accounted for 35 percent of industry income last year, up from 18 percent six years ago.
Examples of fee increases:
• Late fees average $32 this year, vs. $27.46 in 2001, according to industry tracker CardWeb.com. For the top 10 issuers, accounting for 77 percent of outstanding balances, late fees now average $36.50.
• Over-limit fees are up 17 percent over three years. The top issuers now charge $33.50, CardWeb says. In the past, most issuers decided whether to levy the fee based on the balance on the last day of the billing cycle. Some now charge the fee if a cardholder is over the limit any day during the cycle.
• Fees by issuers accepting balance transfers have become commonplace; 3 percent is the going rate, up from 1 percent a decade ago.
• Fees on large cash advances are nine times higher than they were 15 years ago, CardWeb says. Many issuers charge a 3 percent fee with at least a $5 minimum. The cash advance interest rate is at least 19 percent at the top 10 issuers.
Penalty fees frustrate consumers because it's easy to become ensnared by them. Some card issuers are sending bills later in the cycle, reducing the time to meet the deadline, says Ken McEldowney, executive director of Consumer Action. "There used to be a three- to 10-day leniency period. Now you have to have your payment in by a certain time of day." Late payments can send interest as high as 21.9 percent.
Because penalty fees are so pervasive, it doesn't pay to switch cards based on fees alone, McEldowney says.
"However, consumers should avoid a card issuer offering a super-low interest rate laced with potent fees," says Robert McKinley, CEO of CardWeb.com. His advice: "Do not play it to the wire with your credit card payment. You might get your legs blown off with the numerous credit card gotchas in use today."
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