Crunching credit-card users Late payers face stiff fees, higher rates


A holiday on plastic could be risky business this year.

As consumers binge on credit cards, issuers are slapping those who pay late or exceed credit limits with higher interest rates and stiffer fees. In some cases, the interest rates paid by delinquent customers are nearly double the regular rate.

Banks call it the price of irresponsible behavior. But consumer advocates argue the punishment doesn't fit the crime.

"With one hand, banks push card holders to charge more and carry a balance; with the other hand they slap consumers with unprecedented rate hikes," said Ruth Susswein, executive director of Bankcard Holders of America, a consumer advocacy group.

The banks' aggressive campaign to issue more credit cards, which started this spring, can be especially costly to consumers during the holidays -- peak season for charging purchases. Consumer experts urge shoppers to attack their balances with a vengeance and to spend modestly this holiday season.

"These are dangerous times. We are racking up more debt than ever, and people will spend even more during the holiday season," said Ms. Susswein. "It'll take next to forever to pay it off."

Ms. Susswein said some of the fees and rates are exorbitant and have been explained to consumers only in the fine print of their card holder agreements.

One issuer, Capital One of Falls Church, Va., even looks beyond a customer's payment record with the card it issues. Its interest rates are based on a card holder's overall credit picture.

"The person who pays our bills but has problems with others is still a risk," said Capital One spokeswoman Diana Sun.

Capital One, which has raised the interest rates on some accounts from 12.9 percent to 23.9 percent, likens its pricing system to that of car insurance, where bad drivers routinely pay more.

"The people who have good credit should not have to subsidize people who are poor managers of their finances," Ms. Sun said.

With issuers offering perks and low teaser rates, the nation's romance with credit cards has turned into an obsession. The typical American carries at least eight cards with a total balance of $3,900. About 70 percent of the nation's 93 million card holders maintain a balance.

Meanwhile, the signs of slow payment abound. The American Bankers Association reported 3.26 percent of all consumer loans, including credit cards, were at least 30 days past due as of June 30. The same time last year, the delinquency rate was 2.56 percent.

Moody's Investor Services, a credit rating agency, reported that banks were unable to collect 4 percent of credit card loans in the first four months of this year, up from 3.85 in the last four months of 1994.

All this is ammunition for banks, which say they are implementing "risk-based repricing" as a deterrent to tardy payers and excessive spenders.

For example, Citibank, the nation's biggest card issuer, raised rates in April for those who pay late to 21.65 percent. Its standard rate is 18.15 percent.

Last month, AT&T Corp. raised rates for tardy payers of its Universal Card to 20.65 percent from 18.65 percent.

The company also raised fees for exceeding charge limits, bouncing a check, or late payment from $10 to $15.

"Whenever people get behind, it increases our risk and expense. It costs us to go out and collect our money. You can either spread that cost among all the customers or ask those who incurred the payments to pay their share," said Mitch Montagna, a spokesman for AT&T Universal Card.

American Express has a three-tiered pricing system for its revolving Optima accounts that range from 14.75 percent to 21 percent.

Account holders are informed of the changes in their statement or through a special notice.

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