Banks implementing higher fees

Just as consumers increasingly turn to credit cards to cover the rising

cost of living, banks are making credit card use more expensive by raising

fees and penalty rates, making it harder to avoid penalties and promoting

costlier services.

Consumer advocates say unfair and deceptive practices by credit card

companies are luring unsuspecting consumers further into debt.

The banking industry says the changes are necessary to protect them from

the increased risk of nonpayment in a shaky economy. And interest rates are

actually lower for the majority of consumers who have good credit.

As banks have lost money on mortgage defaults and other areas, they are

trying to make up for it by increasing credit card fees and doing

everything they can to get customers into those higher fees, according to

Rick Tuman, president and CEO of the Consumer Credit Counseling Service of

Mid-Florida, which works with debt-laden consumers in Gainesville and North

Central Florida.

Such new fees include moving customers into the penalty rate if payment is

one day late instead of the 30-day grace period of the past.

"They use teaser fees and if you miss one day, it's no longer 8 or 9

percent, it's now 20 or 30 percent," Tuman said.

Annual fees are also going up and banks have added fees for services such

as paying by phone.

Ed Mierzwinski, consumer program director for the U.S. Public Interest

Research Group, has testified before Congress and several banking

regulatory agencies to stop the higher rates for payments that are one day

late and other practices, such as:

Charging penalty rates to customers who were late paying another bank's

card.

Charging interest on money already paid.

Charging different interest rates for items like balance transfers and cash

advances, and applying payments to the lower rates while the higher

interest charges add up.

Credit card companies are also heavily promoting services that add to

consumer costs such as mailing checks for cash advances with higher

interest rates, providing rewards cards that promote spending and

encouraging minimum payments, Mierzwinski said.

"Credit card lending has always been the most profitable form of banking,"

he said. As banks lost money in other areas, he said they "put the screws

down on credit card users."

Congress has proposed several bills to stop the practices targeted by

consumer advocates, and the Federal Reserve and other banking regulators

are considering rule changes that address the same issues.

The higher fees and rates come as consumers are using their credit cards

more. Revolving credit use, which includes credit cards, increased 8

percent in recent months compared to a year ago, the largest rise in seven

years, according to Merrill Lynch.

And many consumers are carrying larger balances. That along with falling

home prices, the rising cost living and a weak job outlook has increased

banks' concerns about consumers' ability to pay. American Express recently

reported that more customers were falling behind on payments.

The rising cost of living has led more people to the five North Central

Florida offices of the CCCS. Maxed-out credit is a common thread.

Tuman said CCCS took 392 appointments in June 2007. This June, that

increased to 496.

He said the people they have been seeing lately are not overusing credit

cards on frivolous purchases as they were three years ago.

Instead, they are just augmenting their income to maintain their standard

of living while faced with $100 extra for gas every month.

Credit is the most risky form of lending because it amounts to an unsecured

loan, meaning it is not backed by collateral such as a car or house title,

according to John Hall, spokesman for the American Bankers Association.

The rates banks charge equals the risk of nonpayment they face, and that

risk is rising in today's economy.

To avoid paying higher fees, consumers have just to pay on time and not

exceed their credit limit, he said.

While rates are up for some credit users, overall rates are actually down

because of lower rates for consumers with good credit, Hall pointed out.

He said 54 percent of consumers pay off their balance every month.

According to the Federal Reserve, credit card interest rates averaged 11.87

percent in May, down from 13.46 percent a year prior and a 10-year high of

15.99 percent in January 2001.

Customers whose rates change are given the option of paying the balance at

their existing rate, but cannot take out further loans on that card, Hall

said.

Tuman said banks are just trying to protect themselves from what he called

"subprime" credit card customers.

"The good customer gets the best rate and the worst customer gets the

highest rate," he said. "They raised the bar and now their worst customer

ain't all that bad. I'm not an advocate for credit card companies, but at

some point the customer has to say ‘No, I'm going to live within my means.'

"

Anthony Clark can be reached at anthony.clark@gvillesun.com or

352-374-5094. Information from The Associated Press was used in this

report.