Credit card fees and penalties

What is the maximum allowable APR on credit cards?

It’s a popular misconception that state usury laws protect borrowers from high interest rates on their credit card debt.

Credit card issuers scored a sweeping victory in 1978 when the Supreme Court ruled in Marquette vs. First Omaha Services that it was legal for nationally-chartered banks to export the more costly terms of their cards to states where the laws regarding interest rates restricted such practices. The credit card issuer need only follow the law of the state in which its credit card operations are located, not the laws of the cardholder’s state of residency.After this Supreme Court ruling, credit card issuers migrated to states with permissive credit policies like South Dakota and Delaware.

I usually pay on time, but occasionally I miss the due date by a day or two. Are these exorbitant $35 late fees fair practice?

I’m going to start out on the bank’s side on this one. A credit card is a line of credit. The bank commits to loaning you money up to your credit line, and you commit to paying them back.

When you don’t pay your bill on time, the bank starts to wonder if you’re going to pay it at all. By penalizing cardholders for late payment, the bank both trains you to make timely payments and gets periodic affirmation of your commitment to repay them. OK, so nobody likes negative reinforcement, and $35 is a pretty expensive reminder. Especially when a couple of late payments are then used as an excuse to raise the interest rate on your credit card.

Can a credit card company continue to charge over-the-limit fees on an outstanding balance of a closed account?

First off, you can’t close an account that has an outstanding balance. You can, however, notify the credit card company that you want the account closed to new purchases. Interest charges and fees aren’t purchases and can continue to increase the outstanding balance.

Credit card companies have the ability to not authorize purchases that would put your account over its credit limit. So anything that is above your credit limit was either done with their authorization or by interest and fees taking the balance over your limit. Regardless of how the fees got there, they aren’t illegal.

A company has offered to help me get a low-rate card for a high fee. Is this my only option for a low-rate card?

No, you don’t have to pay to get a low-interest credit card. You don’t need a middleman to get your foot in the door with a national bank. (Paige Kroger’s story on credit card wise guys underscores this point of view.)

Your credit history is what it is. You can correct errors in your credit report and rebuild your credit over time, but paying someone a high fee for the privilege of having them find you a credit card is wasted money. Put that money toward your credit card bills.

People who are choking on their credit card interest rates should review their credit reports, and correct any errors in the report by using the dispute process established under the Fair Credit Reporting Act. Do that first, so you know that you’re putting your best foot forward when applying for a new credit card.

I did a balance transfer from one credit card to another. My new credit card company sent me a check to pay off my old account but started charging me interest immediately. Is it fair to pay interest on money I’ve not received yet?

Balance transfers are typically treated as cash advances, and interest will accrue from the day the check was issued. There’s nothing improper about the credit card company charging you interest from the time they cut the check.

If there was a several-day delay between the time you made the request and the date they cut the check, and they charged you interest from the day you made the request, then you have a reason to be upset, and you should talk to a customer service manager.

If that doesn’t get results, you could file a complaint with the Federal Reserve Board or the Office of the Comptroller of the Currency if the credit card company is a national bank.

Credit card companies aren’t above earning interest on the float from the delay between when the check was cut and when the check clears. It’s their float to invest.

How does two-cycle credit card billing affect the cost of credit?

With two-cycle billing, the average daily balance used to calculate interest charges is calculated from two billing cycles rather than one. This approach to calculating interest effectively wipes out the grace period for customers who carry a balance. Two-cycle billing is expensive for people who only sometimes carry balances.

You’ll be paying interest on the average of the two cycles. Let’s say you transfer $5,000 to the two-cycle card and plan to pay down your outstanding balance by $500 a month. Your average balance for the first cycle is $5,000 and you owe $15.95 in interest, so you pay $515.95 and have a $4,500 outstanding balance.