Washington, DC -
05/20/2009 - A full 82 percent of credit cards allow penalty interest rate hikes that could last indefinitely, giving responsible cardholders no right to return to the originally agreed upon interest rate, according to a new issue brief from The Pew Charitable Trusts’ Safe Credit Cards Project. A unique Senate proposal known as a “cure period” will help curb penalty interest charges that add billions to Americans’ credit card debt. Pew’s analysis also found:
- Americans are on track to pay credit card penalty interest charges of more than $7 billion annually.
- The median allowable penalty rate was 28 percent (double the average non-penalty rate), adding $500 in penalties per year to a typical cardholder’s account.
Both the U.S. House and Senate recently passed legislation that will halt many harmful and widely used credit card practices. But only the Senate bill contains a “cure period” that will ensure that cardholders have the opportunity to return to their original interest rate after six months of on-time payments. The cure period would significantly curb penalty interest charges.
“Hardworking families shouldn’t be penalized indefinitely, month after month, simply for making a late payment,” said Nick Bourke, manager of Pew’s Safe Credit Cards Project. “The cure period in the Senate bill gives consumers the ability to earn back a fair interest rate by making consistent, on-time payments. This is a common sense provision that helps ensure that both credit card companies and consumers are using credit responsibly; and it is critical that a cure period be part of the final bill signed into law.”
The Pew Safe Credit Cards Project studied all credit cards offered online by the largest 12 issuers, which control nearly 90 percent of outstanding credit card debt in America. This study included more than 400 credit cards. The Project specifically examined the consumer cost of penalty interest rates, which are imposed by credit card issuers on existing and future balances when a payment is received late. In 82 percent of cases, the higher interest rate can apply for as long as the consumer owns the card.
“By preserving the cure period in the final credit card bill, Congress can throw a lifeline to consumers who are struggling to pay their debts responsibly,” said Bourke. “The cure period is essential to comprehensive credit card reform and we strongly urge congressional leaders to include this provision in the final version of the bill sent to President Obama.”Pew is no longer active in this line of work, but for more information visit the Safe Credit Cards Project on PewHealth.org.