Credit card fees: Vicious...and legal

We've talked a lot at WalletPop about the exorbitant fees charged by credit cards, and the restrictive and confusing agreements that come with your credit cards. Well it seems that the credit card companies are taking it even further by becoming more aggressive with interest rate hikes.

More people defaulting on their accounts means the banks have to make up that money somehow, and they've decided to do it with higher penalty interest rates. A penalty interest rate is generally charged when you are in some sort of default under your credit card agreement, most often by paying late.

Credit card companies are hiking rates as high as 30%, even if you only pay one day late. Consumer advocates say this is unfair and should be illegal. Others say that people should either carefully follow the terms of their credit card agreements (pay on time) or face the consequences.
Consumers often think such high interest rates are illegal, and for the most part they're not. The banks have found their way through the loopholes to make sure that the high rates are within the bounds of the law.

While these penalty rates stink for consumers, they're a fact of our current marketplace. It makes me think, though, that there is a real opportunity out there for a bank to offer a credit card that doesn't have such wild restrictions and rates. Consumers would have an alternative and the market might speak to the big banks. If enough of us stop doing business with them, they may have to voluntarily change their practices.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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