Late fees charged for on-time payments
lead the long list of credit card horrors
First in a five-part series: Halloween Horrors
By Lucy Lazarony • Bankrate.com

What do you think? Are credit card fees fair?

As far as horror stories go, it's hard to top this one: While many credit card issuers are making it tougher for people to pay their bills on time, these guys made it downright impossible.

Issuer gaffes caused thousands of First USA and Providian customers to be slammed with late penalties that they didn't deserve.

According to Providian, a computer programming error caused the San Francisco-based issuer to charge about 700,000 improper late fees since early 1998. The error was uncovered and corrected in July.

The scope of the First USA screw-up is less certain. Some First USA customers who had paid their bills on time were charged late fees and saw their interest rates jump to "penalty rates" when payments were held up at a processing facility in Phoenix in late 1998.

"Suffice it to say it was a small number of our total customer base," says David Webster, a spokesman for First USA, which boasts 59 million customers.

The mistake turned up in an internal auditing sweep this spring. First USA blamed the delays on a third-party vendor. Affected customers have been contacted with letters. Late fees have been returned and interest charges reversed.

Making nice
As far as First USA is concerned, all is well.

"We have communicated with all the customers and fixed the problem," Webster says.

Ditto for Providian. All customers who were charged late fees because of the computer error have received refunds, says Laurie Cole, a Providian spokeswoman.

In a further effort to make amends, First USA rolled out two new policies regarding late fees. First off, it no longer charges late fees on balances less than $50.

And all First USA customers will be given an extra "courtesy day" following their payment due dates. In other words, if a bill is due on Oct. 9 and your payment is received on Oct. 10, you can breathe easy -- you won't be charged a fee.

Providian went one better. It now gives customers two extra days past the due date before assessing fees. It's part of an enhanced customer satisfaction program launched in May. The ninth largest credit card issuer also promises to "reverse any late charge where our customer feels wrongly charged."

The glare of publicity
All these pro-consumer initiatives may have something to do with the fact that both Providian and First USA have been in the hot seat for much of 1999. Consumers have sued both companies, accusing them of unfairly charging late fees. The San Francisco district attorney is also investigating Providian. First USA's billing practices came under scrutiny in a scathing report on ABC's Nightline show on Aug. 31.

Despite all the recent attempts at goodwill, some customers remain skeptical. Darlene Roberts is a Providian customer who says she was charged with late fee after late fee in 1998. Many times she mailed her payment by next-day airmail and three-day airmail well before the due date and she was still slammed with a late fee.

"No matter when I sent it, they would always charge me a late fee," Roberts says. "I couldn't ever figure it out."

Roberts also says Providian changed the due date on her secured credit card almost every month. One month it would be due on the 20^th, the next month the bill would be due on the 15th. Roberts believes Providian did this to trip people up and collect more late fees.

"That's straight-up highway robbery. That's what they did to me," Roberts says.

"There's a method to this madness. They mean to make money off this. Especially from people who have trouble with their credit lines. The working poor -- that's who they victimize because they figure you're not going to do anything."

Grace period shorter, fees higher
Even when the company doesn't foul up, lots of card customers are having a tough time making on-time payments because of an industry-wide movement toward harsher payment policies.

To pad profits, credit card issuers have shortened grace periods and pumped up late fees. Many issuers have whittled down the interest-free grace periods on credit cards from 25 days to 20. This means customers have less time to pay off balances and more time to be slapped with interest when they don't pay in full.

Mistakes are costly. Late fees have climbed as high as $29 and many issuers impose the fee if a customer's payment is received just one day past the due date.

The shift in policies means consumers who want to be certain to avoid late fees have to pay credit card bills as soon as they arrive. If your due date falls at a time of the month when money is tight, call your issuer and ask them to change it. Most will.

Merger Mania
As the rules get tougher in general, they can change rapidly for individual consumers when a credit card company is sold.

In the past couple of years, waves of consolidation have swept across the credit card industry. In 1998, more than 20 million Americans held credit cards that were taken over by new issuers. Card customers who enjoyed favorable terms are sometimes in for an unpleasant surprise when a new issuer takes over.

Every credit card company has different criteria for pricing card accounts. Your new card company may yank that low interest rate away from you. And they can do it in a blink of an eye.

Interest rates, late fees, grace periods all can be changed on a short notice. According to federal law, issuers must notify their customers of changes a mere 15 days before they take effect.

Most issuers take some time, anywhere from six months to year, to evaluate their new customer base after a merger. When a new issuer takes over your account, be sure to read every piece of mail the issuer sends you. Be on the lookout for a better offer, just in case your "new" credit card deal is a bad one.

They move, you lose
But consumers can't let down their guard even if the card company stays the same. Card customers may see their interest rates rise if their card issuer moves its headquarters to another state.

That's what happened to Dale Wells when Chevy Chase Bank relocated from Maryland, where state law caps interest rates at 24 percent, to Virginia, which has no state cap, in 1996.

Wells, who had been a good customer without a hitch for 12 years, saw his interest rate increase from 18 percent to 26.74 percent in October 1997. The rate hike took him by surprise.

He called Chevy Chase to ask about his jacked-up interest rate and he was told to "pay off the balance or live with it."

Just a few months earlier, Chevy Chase had doubled his credit line from $4,500 to $9,000 because he'd been such a good customer.

"I had no idea what was going on," Wells says.

In February, Chevy Chase Bank was sued by Trial Lawyers for Public Justice, a Washington-based consumer group for breaking a promise with customers that it would never charge an annual percentage rate of more than 24 percent.

Wells is one of the consumers taking them to court.

"People need to be aware of this. I got trapped in it and I've got a decent income. But there are a lot of people out there who won't be able to get out of it," Wells says.

"It's not a matter of just getting back at them. It needs to stop. It really needs to stop."

-- Posted: Oct. 4, 1999