This year, credit card companies get a gold star.
In recent memory, there's been a lot of outcry against them (remember the great debit "fee-asco" of 2011?), but there's some good news, as reported in Time: Increasingly fewer credit card companies are charging penalty rates.
Penalty rates are another form of fee, charged when account holders make late payments.
Essentially, they're interest rates that increase due to late payments, bounced checks to the credit card company and in some cases, exceeding your credit limit. Once they're triggered, they stick with you for future payment. The rates tend to be exorbitant, sometimes higher than 30%.
But now, they're falling out of fashion.
The CARD Act Takes Effect
Creditcard.com surveyed about 100 cards and found that in 2010, while 91% of the credit card companies surveyed charged penalty rates, by 2011 that percentage was down to 69%. This is at least partly due to the CARD Act of 2009, which limited the circumstances under which penalty rates could be applied.
The CARD Act stipulated that penalty rates couldn't be applied until a customer was 60 days late with a payment. Before that, depending on the card, some usually responsible cardholders would be hit quickly with penalty rates after one barely-late payment. Now, customers who have incurred the raised rates can even reverse them after six months of prompt payments. The exception is a cardholder making three late payments—then the penalty rate will stick.
Fewer, but Higher
But before we release the confetti, there's a caveat: Those companies who still charge penalty rates are doing so at a higher rate. The average penalty rate went from 27.9% to 28.6% in only a year, so those who are still paying penalties are paying higher amounts.
Regardless, these developments give more advantage to the consumer. After all, you can always choose a card without the penalties.
Of course, penalty rates aren't an immediate concern for responsible LearnVesters, as we always pay our bills on time. (Right?)
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