Credit card issuers, "See you in court"
By Lucy Lazarony • Bankrate.com

Credit card customers have had enough.

They're tired of wrangling with issuers over dubious late fees. They're tired of being charged for services they didn't want or order. And they're ready to have it out in court.

In May, a consumer protection lawsuit was filed against Direct Merchants Bank, the credit card unit of Metris Cos. The company is accused of charging customers for unwanted services and tagging on-time payments as late.

In July, Citibank agreed to pay $45 million to settle a consumer class-action suit. The suit accused the credit card giant of improperly assessing finance charges and late fees.

And let's not forget about Providian's highly publicized spanking from the Office of the Comptroller of the Currency. In June, Providian agreed to reimburse at least $300 million to customers who were victims of misleading sales pitches and were charged for products that they did not want.

This record-breaking settlement was the result of a yearlong investigation by the OCC and the San Francisco District Attorney. Additional consumer lawsuits against Providian are pending.

Calling in the lawyers
"Lawyers are getting more calls from consumers saying, 'This doesn't seem right. Is this legal?''' says Kelly Dermody, a partner at Lieff, Cabraser, Heimann and Bernstein in San Francisco, who is working on the lawsuit against Direct Merchants Bank.

Why are so many folks muttering "I oughta sue" when they peruse their credit card statements?

"What's driving the problem is greed," says Patricia Sturdevant, executive director of the National Association of Consumer Advocates. "Consumers are saying, 'We're fed up.'"

Lots of people are questioning card issuers' billing practices. Payments sent in weeks early are billed as late. Payment due dates fall on Sundays or federal holidays. How's a payment suppose to arrive, let alone be processed, on a day when mail isn't delivered?

Many customers are getting zapped with $29 late fees and some extra finance charges. Some folks get slapped with sky-high penalty interest rates as well.

"The fees themselves are outrageous," Sturdevant says. "There's no justification in charging $29 late fees to people. There's certainly no justification in charging a late fee to someone who's paid their bills on time."

Industry: fees pay for low rates
Industry experts contend that hefty late fees are necessary to offset the low annual percentage rates that are available on so many cards. Good customers enjoy the lower interest rates and only folks who break the rules end up paying more, they say.

"The pie needs to shift in one area or another," says Michael Auriemma, president of Auriemma Consulting Group in Westbury, N.Y.

"You can't have the lowest rates and no late fees and no over-the-limit fees."

One thing is certain. Late fees are huge revenue generators for card companies. Bank card issuers made $5.5 billion in penalty fees in 1999, up from $4.8 billion in 1998, according to Credit Card Management Magazine. Ninety percent of those penalty fees were from late payments.

Expensive -- and maybe useless -- protection
Another key area of consumer complaints centers on fee-based, add-on products. Card companies are pushing products promising everything from extra account protection to fraud alerts.

"These are, by and large, sham products that do not benefit consumers," Dermody says.

Worse still, some customers are getting charged for these products without their consent.

Will consumer discontent toward card issuers bring a flurry of class-action lawsuits?

"I suspect the answer will be yes. We will see more. I certainly don't see the banks backing off from their aggressive practices," says Robert Green, a San Francisco attorney. His law firm, Girard & Green, is handling two class-action lawsuits pending against Providian in federal court.

"I'm seeing more and more consumers that are unhappy."

Right to sue taken away
But not every unhappy card customer can sue. Many of the top credit card companies have added mandatory arbitration clauses to their card agreements. In arbitration, a dispute is handled by a third party, called a "neutral," that hears both sides and makes a decision.

"Right now the credit card industry is trying to insulate itself from any legal accountability for any action they may take by pushing for mandatory arbitration," says Paul Bland, staff attorney with Trial Lawyers for Public Justice, a national nonprofit advocacy organization that litigates public interest cases.

"Almost all the big ones do it."

American Express, Discover, Bank One, MBNA America, Bank of America and Wells Fargo all have mandatory arbitration clauses. Citibank and Capital One do not.

Turning anger to an issuer's advantage
However customer disputes are handled, industry folks are well aware that plenty of card customers are pretty ticked off. Some card companies are even using consumer backlash against late fees as a selling point.

In the past two months, Chase Manhattan Bank, Wachovia and First USA, the credit card unit of Bank One, have sent out credit card solicitations for cards with no late fees and no over-the-limit fees.

"This is a way for issuers to capitalize on consumer perceptions," Auriemma says. "People's awareness and sensitivity to those fees is heightened."

Will cards without late fees and over-the-limit fees become the latest credit card fad? Don't count on it. Issuers make so much money off penalty fees that no card company is likely to abandon them for long.

"It will blow over. I think you will continue to see fees," Auriemma says.

"We need to make our money somewhere."

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-- Posted: Aug. 23, 2000