Yes, Virginia, There is a Credit Card Late Fee

December 23, 2004 | Bergen Record |

NEW YORK -- We take great pleasure in answering the communication below from Miss Virginia O'Hanlon, a third-grade student from lower Manhattan.

I am eight years old.
Some of my friends say there is no Santa.
Please tell me the truth, is there a Santa Claus?

Yes, Virginia, there is a Santa Claus. He exists as certainly as the credit cards in your parents' pockets. He exists in the courts that have allowed credit card companies to charge unlimited interest rates, late fees, and penalties. And, of course, he exists in the halls of Congress, where our representatives give away the store to the credit card companies -- certainly at Christmastime, but year-round as well.

You see, Virginia, all who love you want to express their devotion to you with gifts at this time of year. And if your family is like millions of others, they are already borrowing just to make ends meet. Unfortunately, without changes to how we regulate the credit industry, they may be paying off this year's debts for decades to come.

It wasn't always this way, Virginia. Before 1978, 37 states had usury laws that capped interest rates and fees on credit cards, most at less than an 18 percent annual percentage rate.

But in 1978, the spirit of giving touched the U.S. Supreme Court; in the case of Marquette vs. First Omaha Service Corp., the court held that national banks could charge customers the highest rate allowed in the bank's home state -- not the customer's. Major banks quickly moved their headquarters to states like Delaware and South Dakota -- which have no caps on rates -- and interest rates began to soar higher than Santa's sleigh.

Now that banks can charge the rates and fees they want, they set up alluring low-interest "introductory offers," and then create multiple ways to ensure people like your parents end up paying the maximum - whether they're naughty or nice.

They have many ways to trap the unsuspecting:

* Credit card issuers have redefined the word "late" to snare their customers. Grace periods of 15 to 30 days are gone. Many banks label payments received five minutes past 1p.m. on the due date "late." Then they hit customers with fees as high as $39, and, worse still, penalty interest rates that can exceed 30 percent a year.
* Card companies attract new customers with "no annual fee" promises, then unleash a blizzard of other fees: for balance transfers, cash advances, foreign exchange, and exceeding credit limits.
* Credit card companies now routinely check all of a customer's payment records, and use the results against them. That means that, today, people who are late sending in one auto loan payment may suddenly face higher interest rates on every credit card they hold.

Yes Virginia, there is a Santa Claus, and he has been busy helping credit card companies who support the spirit of giving this week, so that they can advance their work of taking all year 'round.

Quite a bit of taking. In 1995, credit card issuers took in $8.3 billion through fees; this year, they are expected to take in $39.6 billion -- an increase of 377 percent. They will also take $79.9 billion in interest charges. These totals have meant a tough year for parents. In fact, more couples filed for bankruptcy than for divorce this year.

Meanwhile, the credit card industry has had its most profitable year ever. But you shouldn't give up hope, Virginia. And you shouldn't stop writing letters to Santa. You just need to start writing letters to Congress as well.

Let your Congressional representatives know that you want a national usury law to give your parents the protections that state laws used to provide. The law's interest rate limit should float, tied to banks' rate of borrowing. That way, banks will be assured a reasonable rate of return, and customers will actually get the savings they deserve when bank rates drop.

You see, Virginia, the spirit of Santa abides in all people who feel the holiday spirit. Even the people who represent you.

You just need to remind them.

 

In 1995, credit card issuers took in $8.3 billion through fees; this year, they are expected to take in $39.6 billion -- an increase of 377 percent. They will also take $79.9 billion in interest charges. These totals have meant a tough year for parents. In fact, more couples filed for bankruptcy than for divorce this year.