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Credit card company late fees are not a new practice within the banking industry. For years, issuing banks have made money off late fees and other fees imposed on customers. Since the Credit Card Reform Act of 2009, credit card companies and late fees have taken some interesting turns.
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What is a Late Fee?
A credit card late fee is a monetary penalty charged to the customer's account when the minimum amount due is not received by the payment due date. According to Responsible Lending, the average credit card company late fee is $39.00. If a person were to pay late every month in a given year, the issuing bank will make $ 468.00 in late fees alone.
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Skating the Line of Fairness
It may seem fair that a credit card company should charge a late fee when a person pays late but in reality, the customer is paying more than just a late fee. One penalty charge should suffice, however your issuing bank tags on other fees under the disguise of the finance charge and annual percentage rate (APR) increases. Your late fee is included on your statement as a charge and will increase your total finance charges due for the statement period. In addition, one late payment raises you to the default APR which typically is 24.99 percent or higher. A higher APR means higher finance charges, which results in your late fee increasing your finance charges twice for the first offense. In the end for your first late payment you are penalized three times and twice thereafter since the default APR has already been raised.
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Unscrupulous Past Practices of Credit Card Companies and Late Fees
First USA (pre-Bank One and merger with JPMorganChase) had class action lawsuits brought against them near the end of the 20th century for changing payment due dates without prior notice and failing to send out monthly statements to many customers. In each event, customers were hit with late fees and APR increases. First USA refused to remove the charges in both instances. Other credit card companies sued for improperly assessing late fees include Chase, Providian, Capital One, Citibank and MBNA (now Bank of America).
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Government Reform to Aid in Fairness
The Credit Card Accountability, Responsibility and Disclosure Act of 2009, (also known as the Credit Card Act of 2009) was signed on May 22, 2009 but did not go into full effect until February 22, 2010. Many consumer protections were outlined in this Act, including protecting consumers from credit card companies and late fee practices. Under this Act, the following late fee traps are banned:
- Weekend deadlines
- Monthly due date changes
- Middle of the day payment deadlines
- In addition, credit card companies have to give cardholders at least 21 calendar days from the date the bill was mailed to pay their bill.
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Ways to Avoid Late Fees
There is only one way to avoid credit card late fees and that is to pay your bill on time every month. There are ways to make sure this is accomplished:
- Sign up for automatic bill pay - the issuer automatically debits your checking account for at least the minimum payment due.
- Mail off your payment as soon as you receive the bill - inclement weather can slow down postal delivery considerably and can cause your payment to arrive late.
- Pay your bill online before the due date - you receive a payment confirmation in the event the bank makes an error and claims your payment was not received.
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Credit card companies and late fees are a thorn in the cardholder' side. With new legislation to protect cardholders and with customers becoming more responsible with payment, late fees can be avoided. Pay attention to your monthly statements and save yourself up to $498.00 a year in late fees.
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Daniel. (2009, April 6). Class Action Lawsuits Filed Against Credit Card Companies . Retrieved March 24, 2010, from Investment Watch: http://investmentwatchblog.com/class-action-lawsuits-filed-against-credit-card-companies/
Frank, J. (2010, January 12). Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate . Retrieved March 24, 2010, from Responsible Lending.org: http://www.responsiblelending.org/credit-cards/research-analysis/Dodging-Reform-As-Some-Credit-Card-Abuses-Are-Outlawed-New-Ones-Proliferate.html
Office of the Press Secretary. (2009, May 22). FACT SHEET: REFORMS TO PROTECT AMERICAN CREDIT CARD HOLDERS. Retrieved March 24, 2010, from White House.gov: http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders/