Credit Card Late Fees Set To Rise In 2017
Credit card companies will be singing an old favorite to kick off 2017.
No, it won’t be “Auld Lang Syne,” that hoary Scottish tune that has ushered in every new year since Robert Burns wrote it in the 1700s. But the siren song will be about remembering friends from the past, as in past due. Card holders will be reminded of their payment transgressions by an increase in late fees.
Starting in January 2017, credit card companies will be able to charge as much as $38 if you are late on more than one payment in a six-month period. That’s the maximum allowed by government regulations, and marks the yet another increase since late fees were capped by the 2009 Card Act.
Late fees are an enormous revenue stream for banks and credit card companies, and even the most careful consumer can fall victim to their predations every now and then. In 2015, credit card companies collected more than $11 billion in penalty fees, according to statistics compiled by the R.K. Hammer consulting firm, which monitors the payments industry. That’s half the total of late fee gross documented before the 2009 Card Act, but we’re slowly catching up to those past levels.
About one-in-five credit card holders with active accounts incur a late fee at some point during the year, according to statistics compiled by the Consumer Finance Protection Board, a government agency that regulates the financial industry. That’s almost 200 million accounts, by most estimates. The fees vary depending on the company and your history of payments, but it doesn’t take much financial stumbling to hit the magic maximum.
As new customers decline for the credit card market because of the inroads of debit cards and greater consumer caution in amassing debt, any boost in revenue is welcome news for the banks and other institutions that issue credit cards.
THE FEE GAME
Even though $38 is a lot of penalty money, it’s still below the maximum of $39 in penalty fees allowed before the 2009 Card Act. As of 2013, the maximum late fee was set at $35 by government regulations, then was raised to $37. In June, the government allowed the fees to go up by $1 to reach $38 starting in January. You can bet that’s not the last increase.
Of course, the $38 maximum penalty is for repeat offenders. First-time late fees are capped at $27 in most instances.
In the card company’s defense, there are costs associated with late payments related to processing and their own debt management. And you did agree to their terms before being granted the privilege of credit, so there’s little to complain about if you don’t live up to your part of the bargain. Whether their costs from your late payment equal $38 is another matter, and certainly there is an element of punishment involved in that magic figure.
Some companies have decided to compete for customers via late fees. In some cases, not every late payment will incur a late fee. Discover Card and Citigroup will give you a one-time pass on any late fee for your first missed payment. Some credit unions will offer cards with no late fees at all.
There’s one other trick to avoiding a late fee – ask your card company to waive the penalty. Most card companies will waive the penalty fee at least one time if the consumer asks, but few people know this or bother to do it.
Of course, if you do it every month, they may not be so charitable about forgiving you. The good news is that the maximum of $38 is usually only charged to repeat offenders.
Beyond the pain of incurring an additional charge for late payment, you can be hurt in other ways if you miss out on delivering your money on schedule. You might lose reward points on your cards. If you are in a 0% promotional period, you could lose that privileged grace period. You might also lose any grace periods allowed for interest on new purchases, so that interest starts accumulating immediately. Your adjusted percentage rate on your card can also go up significantly.
Of course, there’s also the matter of your poor payment scheduling affecting your credit rating. Too many late payments lower your overall FICO score, making it more difficult to get additional credit cards, mortgages, loans. It may even affect your employment.
AVOIDING THE PENALTY
Avoiding the late fees can be a matter of habit. Consider setting up an automatic payment that will make the minimum payment due each month on a certain date within the designated period. If you want to make additional payments to lower your balance, you can do so. But this minimum will protect against missing the deadline because of inattention or other factors.
You can also get in the habit of sitting down immediately after each pay period and taking care of business. Establishing that payment pattern will also help you avoid those “I forgot” moments and establishes a routine.
As with any financial transaction, a little bit of attention to detail goes a long way. Be aware of the penalties you can face with late payments, and set up your own schedule to avoid them. It’s a small sacrifice, and we’re sure you’d rather spend that $38 on dining out, drinks with friends or your morning Starbucks run.
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