New Credit Card Study Shows Consumers are Paying Much Higher Penalty Fees

A new study shows that penalties for late fees on credit cards have more than doubled in the last decade. The average late penalty in 2005 was $34, up from $13 in 1995. Other penalties have also increased or have been added according to an analysis of credit card disclosure and fees by the US Government Accountability Office (GAO).

"Consumers need to understand that the late fee is expensive--the highest fee is now $39, but it may be accompanied by a bigger problem because issuers such as Chase can increase your interest rate to the default rate of 32% after just one late payment," says Bill Hardekopf, CEO of Lowcards.com. "This punitive policy is described in the disclosure, but you have to look for it and read it several times to actually understand the consequences."

Here are some interesting findings from the study:

--In 2005 more than one-third of US accounts received a late fee at least once.

--11% of active credit card accounts have penalty rates above 25%. This is more than double the 5% of accounts paying these high penalty rates at the end of 2003.

--Issuers reported that they assessed over the limit fees in 13% of active accounts in 2005.

--Of the 28 popular cards analyzed in this study, 74% offered a low intro rate, a two-fold increase from the 37% in 2003.

--In 2005, 93% of cards surveyed for the study had a variable interest rate.

--Almost half of all active accounts paid little or no interest because the cardholder paid the balance in full

--In 2005, consumers held more that 691 million credit cards, an average of 2 per household. The total value of transactions using the cards exceeded $1.8 trillion.

The GAO study also shows that card issuers have done a poor job of clearly communicating information about fees and policies to cardholders.

"This study correctly points out that credit card terms and conditions are too complicated. The disclosures don't clearly explain terms like 'two-cycle billing' that can be expensive for cardholders," says Hardekopf. "This is one of the purposes of LowCards.com--to simplify the fine print, to point out costly practices like 'two-cycle billing,' and to make it easier for consumers to understand the terms of the card before they apply."

The study also listed fees that are costly but are typically not included in the disclosure. Consumers need to be aware that issuers usually charge for services such as telephone payments and duplicate copies of credit card records.

LowCards.com ( http://www.lowcards.com ) is an independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards/rebates, and lowest intro rates. It also gives and unbiased ranking and review for each card. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for over six years.