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What's a credit card company to do?

By Maxine Shapiro, KERA 90.1 business commentator

Dallas, TX – As the unemployment number keeps multiplying, it's a pretty stinky time for credit cards to be adding more fees, increasing penalties for late payment, and reducing credit limits to those most in need. But then, finesse was never a term used with the banking industry. I'm Maxine Shapiro with KERA Marketplace Midday.

What's a credit card company to do? Interest rates are low and competition, like in any other industry, is the name of the game. How about a "fee frenzy?" That's what the CEO of CardWeb.com called it in an earlier Wall Street Journal article.

For example, most credit card companies are shortening their grace period for late payments. Bank One, which owns First USA and Citibank, which owns me and AT&T Universal, now give you only 20 days instead of the usual 25 grace days. And boy, I bet you were surprised the first time you were late. It's been years since it happened and you had legitimate reasons. And there in black and white, an extra $30 was tacked on for your tardiness. CardWeb says that's about the average fee now, up about 6% from last year and double from the average five years ago. But brace yourself; a $40 late fee is lurking in the shadows. Direct Merchant Bank raised it late fee last year to $39. Yikes

Banks are feeling the pressure to do something. The Federal Reserve reported consumers continue to pile on the debt - almost $5.5 billion in February alone was added, making the total consumer debt reach almost $1.75 trillion - not counting home mortgages. So banks last year had to write off an average of 6% per quarter on outstanding credit card balances. And 6 seems to be the unlucky number for everybody. That was the increase in 2002 of bankruptcies filed from the previous year making it a record 1.5 million people filing.

You should know right behind merchant costs, penalty fees account for the third-largest source of revenue for major card companies. And experts say they're here to stay. For KERA Marketplace Midday, I'm Maxine Shapiro.

 

Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 p.m.

Email Maxine Shapiro about this story.