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- First, they increased late fee penalties on late-pay consumers.
- Then, they said a late-fee of up to $35 wasn’t good enough, so a late payment also resulted in a “penalty interest rate” as high as 36%, or nearly 3 times a typical credit card rate. These penalty APRs were imposed retroactively on existing balances.
- Then, they tricked more consumers into paying late by changing due dates randomly, shortening the period between when a bill was mailed and when it was due, and even making bills due on a Sunday (and imposing penalties if it arrived on Monday). They charged late fees and imposed penalty interest rates on bills as little as one hour late.
- This wasn’t enough. Issuers next saw an opportunity to increase penalty fees and interest from consumers who’d always paid on time. They invented the practice of “universal default,” allowing them to impose penalties on always on-time customers who’d had their credit score decline for any reason.
- But the card issuers weren’t done. Finally, they used their contractual provision stating “We can change the rules at any time, for any reason, including no reason” to raise everyone else’s rates.
- The CARD Act made it harder to impose egregious penalty interest rates. It banned tricks designed to make you pay late and, most importantly, prohibited imposition of retroactive interest rate hikes on existing balances until a consumer was 60 days late.
- It provided protections for young consumers and students, including an “ability to pay” provision and restrictions on on-campus “free pizza if you sign-up” marketing. It also required establishment of a public database of lucrative campus credit card contracts. A recent CFPB report highlights the benefits of this last provision.
- The CFPB found that in 2012 consumers saved $4 billion in unfair late and over-the-limit fees. A separate academic study estimates that fee savings annually have totaled $12.6 billion.
- The size of the typical late fee declined by $6.
- Late fees, over-the-limit fees, and other penalty fees have declined as a percentage of outstanding balance
- Cordray: “Consumers have responded positively to these market-wide changes. When JD Power released its 2013 U.S. Credit Card Satisfaction Study, it showed credit card satisfaction at an all-time high since the study was first conducted.”
- Cordray: “The CFPB found that annual fees and interest rates increased since 2008, which indicates a shift from hidden back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.”
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