Consumer Payment Card News

Penalty Pain

The three consecutive rate hikes by the Fed are like pouring lemon juice on a paper cut for consumers tangled up in penalty interest rates. Starting next month, punitive interest rates, among the top ten issuers, will range from 24.65% to 30.74%. Across the entire U.S. credit card market, penalty interest rates will range from none to 41.00%. Providian, the 10th largest U.S. issuer, levies the greater of prime +25.99% or 29.99%, on cardholders who miss payments or default in some way. CompuCredit, an Atlanta-based issuer of “Aspire VISA” card, charges an interest rate of prime +36.25% with a 41.00% minimum, to its most risky cardholders who become delinquent. Today, consumers may have their interest rate boosted to the penalty level for missing one or two payment due dates, or for going over the credit limit a time or two. Many issuers also assess the highest rate under the “universal default” clause in the “Cardholder Agreement.” Under “universal default” an issuer may change the rate if the cardholder defaults under any credit agreement, even if the account is with another creditor for auto loan or mortgage. This week, the Fed raise short-term interest rates by 0.25%, boosting the prime rate to 4.75%.

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|_3. CREDIT CARD PENALTY INTEREST RATES|
|_3. (effective 10-1-04)|
|_. | June | Oct|
|_. 1. Citibank | 27.99% | 28.74%|
|_. 2. MBNA | 24.99% | 24.99%|
|_. 3. Bank One | 27.74% | 28.49%|
|_. 4. Chase | 25.99% | 26.74%|
|_. 5. Discover | 24.99% | 24.99%|
|_. 6. Capital One | 25.90% | 25.90%|
|_. 7. Am Express | 25.99% | 26.74%|
|_. 8. Bnk of Amer | 25.99% | 26.74%|
|_. 9. HSBC/HH | 23.90% | 24.65%|
|_. 10. Providian | 29.99% | 30.74%|
|_. AVG | 26.35% | 26.87%|
|_3. Source: CardWeb.com’s CardWatch(R) |

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