CREDIT
Hunting for Hidden Fees in the Fine Print
Decision Center
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Convenience user
If you pay your bill in full every month, you're what the industry calls a convenience user. That's a dirty word because it means you don't pay any interest. For you, card issuers - led by General Electric Capital Services - have added an annual penalty fee of $25. Other issuers are cutting rebates and eliminating grace periods for convenience users.
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How high can rates go?
How high can credit card interest rates go? Pretty high. Ruth Susswein says the highest rate she's ever seen is 32.6 percent. "That was a penalty rate," Susswein says. "It started at a little over 28 percent and increased because the cardholder was late." Some states still impose usury rates - or a maximum rate at which interest can be charged. But banks have argued, successfully, that it is the state where they are based that determines their policies, not the state in which the cardholder lives. A U.S. Supreme Court case upheld the card issuers right to export their rates and fees.
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What to do?
If you find you are being charged a penalty rate, there are 20 states that permit you to keep your old rate while you pay off your balance, if you send a letter to the bank announcing that you want to close your account.
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Ask the Experts
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Bank Rates
ay you can't quite pay off your credit card balance each month. Don't be surprised if you get slapped with additional fees and higher interest rates. Oh, so you do pay off your credit card bills every month? Great. Many credit card companies now reward you with extra fees, too.
Welcome to the new world of credit cards. The high margins and hot competition in the credit card business over the past couple of years have turned it into a junk business. Over the past three years, Americans have received more than eight billion offers for credit cards. They've accepted far too many of them. Both borrowing and delinquencies have soared and many of the card issuers have run into trouble.
Delinquents abound
The American Bankers Association said that 3.72 percent of credit card borrowers were behind on their payments in the fourth quarter of 1996, up from 3.48 percent in the previous three months and 3.34 percent in the fourth quarter of 1995.
Card issuers have responded to the rising delinquency rate by demanding more money from those who pay their bills to cover those who don't.
"Recently, we've seen card issuers resorting to penalty rates in an attempt to maintain high profits," says Ruth Susswein, executive director of Bank Card Holders of America, a consumer group in Salem, Va.
The fine print tells all
The most common tactic is what's called a "penalty rate," which is a higher interest rate that the card issuer may impose for a number of reasons. The fine print of the contract that you accepted (when you signed your card) might lay out the conditions for a penalty rate or it might just leave it vague.
"It may say in the fine print that if you are late two times with your payment, we may impose a higher interest rate," Susswein said. Or it may say, "if you do not abide by the agreement, we may impose a higher rate."
For instance, suppose you've accumulated a lot of debt on a number of different credit cards. "Credit card issuers are likely to look at your records every three months to see if you're carrying larger balances," Susswein said. If so, you may get the penalty rate. "They call the decision to raise your rate, risk-based pricing," she said. Translation: because you have more debt you are now a higher risk and they want to make sure they get their money while you're still paying. Don't be surprised if there's no drum roll announcing the new rate.
"They can either send you a note or they can just send your next statement and your 14 percent rate is now 24 percent," Susswein said. The rates might be imposed for six months or a year or until your balance is paid off.
In the penalty box
Penalty fees are a bit different. These are one-time fees imposed because your payment is late or because you made purchases that raise your account over your credit limit. These fees have been around for awhile. But they've increased - from $15 to $18 or $20 - and they are imposed more quickly.
"It used to be that you'd be charged a fee if your payment was 15 days late," Susswein said. "Now if it's one day late, you get the penalty." One-third of the top 30 card issuers impose a late fee within one to three days of the due date, Susswein said.
Clearly, you should take pains to pay on time. "The last thing you want is to be late with your bill," Susswein said. "First you get the $20 penalty and then if you're late twice, you get the penalty rates."
The other thing you should do is vote with your feet. If you don't like the new fees that are added to your card, get a new one and cancel the old one. "There is no doubt in my mind that if we don't take our business elsewhere, everyone will be adding these fees," Susswein said. 
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Illustration by James O'Brien Copyright 1998 Microsoft Corporation