Released: October 18, 2006

No brakes on credit card fees

Source: By Jeanne Sahadi, CNNMoney.com

Late fees and penalty interest rates continue to charge higher, according to a recent report from the Government Accountability Office [download PDF].

The average late fee in 2005, for example, was $34, up 162 percent from $13 in 1995, the GAO found. Over-the-limit fees were $31, up 138 percent from $13 during the same period.

Last year, penalty interest rates hovered around 30 percent at the leading card issuers, with one bank charging 35 percent, according to Consumer Action’s annual credit card study. Those rates can be triggered by late payments, charging too high a percentage of one’s credit limit or exceeding it.

Penalty rates this year are almost certainly higher, since regular variable rates charged to consumers have gone up four percentage points, said Linda Sherry, Consumer Action’s director of national priorities.

For consumers who can’t afford to pay off their credit cards balances in full, high penalty interest rates and fees can leave them with an increasing balance despite their making regular payments.

But to what extent those penalty charges contribute to a consumer’s need to file for bankruptcy isn’t clear.

The GAO report cites research that both supports and refutes the claim that credit card penalties can help push a financially distressed consumer into bankruptcy.

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