Business & Finance Finance

DebtSmart (r): Penalty Rates

Scott,

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?

Paula


Paula,

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:

Providian
"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."

CitiBank
"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!

Regards,
Scott

SHARE
RELATED POSTS on "Business & Finance"
Money Saving Techniques In The Household
Money Saving Techniques In The Household
Mistakes Can Be Corrected, But Not Always
Mistakes Can Be Corrected, But Not Always
Banks With Free Checking Accounts
Banks With Free Checking Accounts
For Catering Long Term Needs With No Delay
For Catering Long Term Needs With No Delay
What Are The key benefits of Trading Currency Exchange On The Web?
What Are The key benefits of Trading Currency Exchange On The Web?
Bankruptcy Car Loans Can Be The Savior You Have Been Looking For
Bankruptcy Car Loans Can Be The Savior You Have Been Looking For
Think Beyond Bankruptcy For Debt Elimination
Think Beyond Bankruptcy For Debt Elimination
Night Trading for Emini Futures, No It's Not Gary Cooper in High Noon at the OK Corral
Night Trading for Emini Futures, No It's Not Gary Cooper in High Noon at the OK Corral
Do You Know How to Make Fast Money?
Do You Know How to Make Fast Money?
Money Management For Teens And Learning Responsibility
Money Management For Teens And Learning Responsibility
Government Grants For Small Business - A Purpose Oriented Beneficial Grant
Government Grants For Small Business - A Purpose Oriented Beneficial Grant
Debit Consolidation-Debit Consolidation Loan
Debit Consolidation-Debit Consolidation Loan
Learning The Tulsa Home Loans Process
Learning The Tulsa Home Loans Process
Find The Best Buy Here Pay Here Lots
Find The Best Buy Here Pay Here Lots
Easy Pay Mortgage Rate
Easy Pay Mortgage Rate
Shaw Capital Management for Small Business Financing with Factoring
Shaw Capital Management for Small Business Financing with Factoring
Four Persons Who Shouldn't Go for A Home Loan Modification
Four Persons Who Shouldn't Go for A Home Loan Modification
Wise Tax Ideas
Wise Tax Ideas
Managing Your Time And Money
Managing Your Time And Money
Cash Advance Loans Find Competition In Pawn Shops
Cash Advance Loans Find Competition In Pawn Shops
Commercial Van Insurance Explained
Commercial Van Insurance Explained
Obama's Federal Grants for Debt Relief are Americans Pay Off Personal Debt - Qualifying Is Easy!
Obama's Federal Grants for Debt Relief are Americans Pay Off Personal Debt - Qualifying Is Easy!
The Careful Canadian Balancing Act
The Careful Canadian Balancing Act
Prestige Sunrise Park Urban Center
Prestige Sunrise Park Urban Center
Tips For Beginners: Forex Trading
Tips For Beginners: Forex Trading

Leave Your Reply

*