Consumer Payment Card News

Fees & Recession

While annual fees were largely driven from the U.S. credit card market in the early 1990s by the “Discover Card,” “AT&T Universal Visa” card and the “General Motors MasterCard,” the escalation of penalty fees has more than made up for the lost revenue. Compared to prior recessions Americans are facing late fees and over-limit fees that were either nonexistent in prior recessions or that have tripled in dollar amount. In reviewing the last five recessions has found that the current recession carries late payment fees and over-limit fees that average about $35 each, compared to $11 to $12 in the prior recession. In the 1980s over-limit fees did not exist and late payment fees averaged about $10, and both were cost-based instead of profit-driven. Besides the significant rise in the actual dollars, penalty fees are also accessed in a much more prompt and widespread manner. In the 1980s cardholders were generally permitted to submit payments up to 15 days after the due date without bumping into a late fee. The late fee usually reflected the cost of making a reminder phone call or sending a reminder letter. Today, late payment fees are generally charged if the cardholder fails to submit a payment by mid-afternoon on the due date. Over-limit fees first appeared in the 1990s and were not widely adopted until the mid-1990s. Most cardholders were permitted to go over the credit line by 5% to 20% before any penalty was accessed. Today, cardholders are automatically charged an over-limit fee if the balance exceeds the credit line anytime during the billing cycle and even if interest charges or other fees create the over-limit situation. Best advice for cardholders is to avoid penalty fees at all costs as they represent the tip of the massive damage that can be done if the interest rate is bumped up to a punitive level, or currently about 28%.

                        CREDIT CARD FEE HISTORICAL
        Recession          Annual   Late Pay    Overlimit   Total
        Jan 1980-Jul 1980:  20.00     10.00        0.00     30.00
        Jul 1981-Nov 1982:  20.00     10.00        0.00     30.00
        Jul 1990-Mar 1991:  16.50     11.00        5.00     32.50
        Mar 2001-Nov 2001:   0.00     12.00       11.00     23.00
        Dec 2007-Dec 2008:   0.00     35.00       35.00     70.00

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