Credit card issuers,
"See you in court"
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
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
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
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
"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
Right to sue taken
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
"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."
Bank of America
and Wells Fargo
all have mandatory arbitration clauses. Citibank and Capital One
Turning anger to an
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
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
"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