Credit card late fees up 29%

Increase covers about 40% of domestic market

Fairness debated


Several of the nation's biggest credit-card issuers have sharply raised the penalty fees they charge consumers who pay their bills late, causing what's likely to be the biggest monthly fee increase in the industry's history.

Five influential banks controlling about 40 percent of the U.S. market now charge a monthly $35 late-payment fee, an increase of 29 percent over the industry's previous average of $29.

Consumer groups complain that fees, which generate about 30 percent of card issuers' earnings, have become a profit center.

Besides dunning customers who pay late, issuers levy hefty fees when consumers exceed their credit limits, take cash advances, transfer balances to another card, use their cards overseas, close out accounts or don't use their credit cards often enough.

"It was what the market would bear," said Robert B. McKinley, who heads Frederick-based, which tracks industry trends. "Once the market gets conditioned to $35, they will all pile on. You'll see."

The increase has re-ignited a long-standing debate over whether the fees are fair and appropriate.

"Nobody is arguing that they are strictly an effort to cover expenses," said Fritz Elmendorf, a spokesman for the Consumer Bankers Association in Arlington, Va. "You have an obligation to make your payment on time, and there's a penalty component to late fees to help instill the proper bill-paying discipline."

Consumer groups complain that the fees far exceed the issuers' costs and violate a California law that limits such fees to $15. But industry experts and consumer activists predict that such fees are likely to rise even more this year and could affect not only chronic late-payers but also consumers who only sporadically wait too long to mail their payments or stumble financially.

Many issuers have set "hair triggers" on their payment deadlines, McKinley said. One issuer set its deadline at 8 a.m., too early for procrastinating customers who rush their checks via overnight mail.

The repercussions go beyond the amount of the fee. If consumers pay late twice within a six- or 12-month period, many lenders automatically vault them into a much higher interest rate on their credit-card balances.

For years, late fees had topped off at $29, even though Fleet Credit Card Services cracked the $30 barrier in 2000. No. 1-ranked Citibank's fee increase in August apparently emboldened No. 2 MBNA and giants Discover and U.S. Bank to follow suit this year.

With MBNA's and Discover's fees taking effect this month, the average late-payment fee on credit cards is expected to climb 3 percent this month, CardWeb said. That would be the biggest monthly increase in industry history.

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