Steep Credit Card Universal Default and Penalty Rates Can Happen to Anyone According to New Study
Consumer Action, a non-profit education and advocacy organization, recently released its 2005 credit card industry study containing the top reasons banks might impose high universal default and penalty rates.
According to Linda Sherry of Consumer Action:
"The factors cited by card issuers are very broad. It appears that anyone - not just people in financial difficulties - could be subjected to a much higher rate for very insignificant reasons."
Over 50% of credit card companies, including most large issuers, are now imposing universal default rate hikes for a myriad of alarming reasons. Some things that can trigger a universal default rate hike are:
- Decrease in credit score
- Late payments on other credit cards
- Going over credit limit
- Bouncing a check
- Excessive debt
- Excessive credit
- Opening a new credit card account
- Inquiring about a car loan or mortgage
Some of the card issuers surveyed said it is possible to lower the higher rates if the cardholder's credit history improves after six months, although not always to the original rate.
Some of the other findings in this study of the credit card industry's practices included:
- Average bounced check fee of $28.61
- Late payment fee average of $27.46
- Average over credit limit fee of $30.18
- Reduced credit limits because of late payments, over limit, declining credit scores
- Average annual fees (for cards with annual fees) of $43.27
- APR of 20.23% for credit cards with cash advance offers
- Average cash advance service fee of $41.28 or 3.01% of the amount of cash advance
- Teaser introductory APRs
- Cash, mileage, auto purchase points, merchandise points and gasoline offered
as rewards on credit cards with rewards programs
Linda Sherry also noted:
More information about this year's study can be find at Consumer Action's website.
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