Personal Finance

Take it easy on me! Card issuers extract less flesh from late payers

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Punishment for the sin of being late on a credit card payment is getting slightly less onerous for users who fail to pay their bills on time, according to a report issued Monday by

Fewer card issuers are imposing rate penalties at all, according to the survey of 100 U.S. credit cards. For those that are, the average penalty rate for late payers fell to 28.45 percent in October of this year from a 28.6 average annual percentage rate (APR) in 2012, the study showed.

"About 90 percent of issuers in 2010 used penalty rates. This year it's just 60 percent," said Matt Schulz, a senior industry analyst at, a consumer credit card marketplace.

The penalty APR typically kicks in when a credit card holder is at least 60 days late with a payment, or has exceeded the credit limit.

For example, did the punishment math for a cardholder with a $4,000 balance with an 11.82 percent rate the average rate for those carrying a balance, according to the Federal Reserve. If a 28.45 percent rate kicks in, the cardholder would have to pay an extra $665.20 in interest over the year.

However, experts say the best bet is to keep a tight rein on credit balances at all times.

"The first rule of having a credit card is pay as much as you can, on time, every time. Otherwise the math starts to work against you," Schulz said. "That math can start growing pretty fast."

Nationwide, 38.1 percent of American families had credit card debt in 2013, down slightly from 39.4 percent in 2010, according to the Fed's triennial Survey of Consumer Finances. The mean balance fell to $5,700 in 2013 from $7,600 in 2010, according to the report.

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The penalty rate varies not just lender to lender, but card to card. Although there is no limit to what the penalty could be, the highest rate discovered in the survey was for the NFL Extra Points card from Barclays, which charges 30.24 percent as a penalty.

However, the survey was conducted in October, and that NFL card no longer charges a penalty rate, said Nicole Dye-Anderson, the assistant vice president for media relations at Barclaycard US. At the end of October, the card also lowered its regular rates for new customers to 14.99 percent, 19.99 percent and 24.99 percent, she said.

The first rule of having a credit card is pay as much as you can, on time, every time. Otherwise the math starts to work against you.
Matt Schulz
senior industry analyst at

The survey found that of those with penalties, 32 stated they calculate a cardholder's penalty APR based on the customer's creditworthiness while 28 said the penalty APR is based on the prime rate plus a specified percent.

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More than 40 cards in the survey had no penalty rate at all, including several Discover cards, Capital One cards and the WalMart Mastercard. Schulz said more cards may be moving in this direction because it positions them as more consumer-friendly.

But overall, the lower penalty APR is at least in part due to the implementation of the 2009 Credit Card Accountability, Responsibility and Disclosure Act, Schulz said. Earlier this year, U.S. Congresswoman Carolyn B. Maloney (D-New York,) the author of the 2009 Credit Card Act, said consumers had saved upwards of $63 billion since the passage of the law.

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Among other benefits in the act, cardholders can get out from under the penalty after they make make six consecutive on-time payments.

The survey was conducted in October of the 100 U.S. credit cards that are also used by to calculate its Weekly Rate Report. For cards with a range of penalty rates based on cardholder creditworthiness, the highest possible APR was used in the average rate calculation.

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