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Tuesday, May 21, 2024   

Penalty Rates
by Scott Bilker
Scott Bilker is the author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. He's also the founder of DebtSmart.com. More about and DebtSmart can be found in the online media kit.
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Scott Bilker


My interest was raised to 28% after "a few" (honestly) late payments. They told me they would review my info in 6 months. Do you think I have a chance of getting them to lower my rate?



What's happened to you, and many, many others, falls under the "Penalty Rate" or "Default Rate" clause in your credit card agreement. In the mid- to late-90's, I started receiving Change of Terms Notices from many credit card banks informing me that if I missed a couple payments, they'd raise my rate to 29.99% or even higher!

Today, I believe that most, if not all, credit card banks have these clauses in their agreements. That's why it's so important to read the fine print and why I say that the greatest sin in bill payment is being late. Being late can cost you thousands of dollars in, what I consider to be, unnecessary rip-off fees!

Here are some of the terms as they're written in my personal notices:

"Starting on the Effective Date, the Annual Percentage Rates (APRs) section of your Account Agreement will be amended to provide as follows (if not already applicable to your Account): Each time you default under any Providian Account Agreement because you fail to make at least the Minimum Payment by the Payment Due Date, Exceed your Credit Limit, or make a payment to us that is not honored by your bank, the APR (including any introductory rate(s) for Purchase, Balance Transfer, Cash Advance, and Promotional Offer Balances may increase up to 29.99%, or up to the Prime Rate plus 25.99%, whichever is greater."

"If you default under any Citibank Card Agreement because you fail to make a payment to us or any other creditor when due, you exceed your credit line, or you make a payment to us that is not honored by your bank, we may increase the Annual percentage rate (including any promotional rate) on all balances to a default rate of up to 24.99%."

Bank of America 
"If we do not receive at least the Minimum Payment Due shown on a Statement for two consecutive Billing Cycles after the billing date for that Statement; or within a twelve consecutive Billing Cycle period you either miss three Minimum Payments or are three times Overlimit; or you are reported 60 past due by any creditor (including any Bank of America Corporation affiliate) or a lien or judgment appears on your credit report, then the Annual Percentage Rate for all balances on the Account will be a variable rate of the Index plus a Margin of 14.99% (23.99% minimum APR)."

What does all of this mean?

Well, if you miss a payment, bounce a check, miss a payment to your electric company, have any legal-financial problems and so forth, you can be penalized by having your rate increased to insane levels! The Mafia has better terms--well, unless you include the breaking of limbs--hey, maybe that's where the banks are going next!

Paula, this also happened to my friend Joe DiBiase. In his case, he moved and his mail wasn't forwarded, so he was late paying an electric bill. Shortly thereafter, he received notice from his Providian account that they raised his rate to 29.99%! In the next few weeks, four of his other credit cards sent him notices that they were raising his rates.

Here's what you can do, what I would do, and what Joe did. Call the bank and ask to speak to a supervisor. Tell them that this rate increase is ridiculous and you want your rate reduced to the original APR right away. Don't plead. Don't beg. Simply explain that if they do not comply, then you'll be transferring your balance to another credit card, pronto!

If the bank does not budge off that penalty rate, then you need to punish them by transferring your balance. And since the rate is 28%, it shouldn't be too difficult to find another credit card to beat that rate. The important thing is that you actually transfer your balance so you save money. Teach your bank a lesson in the only way they understand, which is to spank their bottom lines!

As soon as you pay them off with a balance transfer, it won't be long before they reduce your rate and beg you to use them again!

Please let me know what happens!




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