Consumer Payment Card News

Penalty APRS

Interest rates charged to cardholders who miss payments, exceed credit limits, or otherwise default in some other manner, have increased from an average of 23.26% in April 2001 to an average of 26.16% for last month. Since many of these rates are variable, any future increases in the prime rate will drive these rates even higher, in some cases above 30%. Over the past three years the prime interest rate has dropped from 8.00% to 4.00%, thereby raising the spread of these punitive rates by more than six percentage rates, from 15.26% to 22.16%. During this same period, major issuers have widened their definitions of a “default” to include a “default” with any creditor, also referred to as “universal default.” For example, miss a car payment and you could be considered in “default” of your unrelated credit card accounts. Some issuers have made broader intrepretations of “default.” Bank One recently raised the interest rate on a CardWeb.com employee from 14.24% to 27.74% due to “bankcard balances increased to (sic) fast” and “balances on bankcard are too high.” The employee had no late payments or over-limit infractions with any creditors. According to recent CardWeb.com homepage polls, nearly 50% of consumers say their interest rates have increased and 30% indicate they are paying current interest rates above 20% on their credit card accounts. Among the nation’s top issuers, Providian charges the highest punitive interest rate of 29.99% or prime +25.99%. MBNA, which does not disclose it penalty APRs on applications, recently raised its penalty APR to 24.99%. Bank One’s penalty APR is 27.74% or prime +23.74%.

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|_3. CREDIT CARD PENALTY INTEREST RATES |
|_. | 2001 | 2004 |
|_. 1. Citibank | 24.99% | 27.99% |
|_. 2. MBNA | 19.99% | 24.99% |
|_. 3. Bank One | 19.99% | 27.74% |
|_. 4. Chase | 21.99% | 25.99% |
|_. 5. Discover | 22.99% | 24.99% |
|_. 6. Capital One | 22.40% | 25.90% |
|_. 7. Am Express | 23.99% | 23.99% |
|_. 8. Bnk of Amer | 24.40% | 25.99% |
|_. 9. HSBC/HH | 23.90% | 23.99% |
|_. 10. Providian | 27.99% | 29.99% |
|_. AVG | 23.26% | 26.16% |

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