Sixty-nine percent of the issuers surveyed by Consumer Action will raise interest rates when a customer pays late, compared to 47 percent in 1998.

Associates National Bank, Direct Merchants Bank and Household Bank are among the issuers charging penalty APRs as high as 29.99 percent.

Additional penalties popping up
Some issuers have a one-strike penalty policy. One slip up -- pay late or go over limit once -- and you'll be charged a fee and a penalty interest rate. Case closed.

Other issuers have adopted a tiered pricing scheme for rule breakers.

For example, GE Select Titanium MasterCard, issued by Bank One's First USA, has a 2.9 percent teaser rate followed by a variable APR of 11.74 percent. Pay late during the introductory period and the APR immediately shoots up to 11.74 percent. Pay late twice in any six-month period and an APR of 19.99 slams into place.

Just how long will these sky-high interest rates last? It depends on your cardholder agreement. Some issuers punish rule breakers for a set period, say two billing cycles. Other issuers are more vague.

"A good many of them had no way to get back to the original APR, so it was an indefinite increase," says Deirdre Cummings, consumer program director at Massachusetts Public Interest Research Group, which released a survey of 100 credit card offers in 2001.

If you mess up, you could be stuck paying a sky-high penalty rate for quite some time. So watch your step, and be a good card customer. It won't be easy.

Fall from grace
Gone are the days when issuers allowed 10 or 15 days for a payment to arrive after a due date before charging a fee. Thanks to dwindling grace periods, customers have less time to pay bills after they arrive in the mail.

You've got to be quick with that card payment. If your payment arrives one day late, you'll be punished.

Some issuers even have early morning posting times. Say your bill is due at 6 a.m. on its due date. If your payment arrives with the 9 a.m. mail on the day it's due, it may still be considered late.

"It's part of the strategy of trying to figure out how to get more people to pay more money," Cummings says.

New fees for other transactions
Credit card issuers also have introduced new fees for balance transfers and overseas transactions.

Several issuers charge transaction fees of 3 percent to 5 percent whenever you accept a balance transfer offer. A 4 percent fee on a $1,000 balance would cost $40. Some issuers cap fees at $35 to $50. Most issuers charge these fees as soon as a balance is transferred onto a card.

Many banks are also charging 1 percent to 3 percent fees for "converting" purchases made in foreign currencies into U.S. dollar amounts, although in fact the banks themselves are doing no converting. It's already done by MasterCard or Visa, which charge 1 percent for the service.

Why the fee frenzy? Issuers aren't making as much money from finance charges as they used to. Fierce competition in the credit card business has driven down interest rates. More consumers are paying off their balances. Issuers, looking for ways to ratchet up profits, have turned to fees.

With so many issuers charging so many different kinds of fees, it's more important than ever for consumers to study card offers carefully.

"The most important piece of advice for the consumer is to know the real cost of the money you're borrowing -- not only the interest rates but the penalty rates," Cummings says.

"Shop around. Don't rely on what shows up in your mailbox. It's definitely worth looking at the whole universe of credit cards."

This Bankrate.com search engine lets you search for credit card offers from banks around the country. You also can locate the best deals for people who carry balances and the best deals for people who pay off their bills each month.

Finding a fee haven
If you're sick and tired of credit card fees, you may want to consider getting a card from a credit union or local community bank. Smaller credit card issuers have not jumped on the fee bandwagon.

"Community banks are much more service-oriented. They're very much concerned with serving their customers," says Scott Broughton, senior vice president of marketing for ICBA Bancard, the credit card subsidiary of the Independent Community Bankers Association.

"Many of them probably view some of those tactics as almost anti-consumer."

Late fees and over-the-limit fees at community banks range from $10 to $15. Unlike some larger issuers, you won't be charged an over-limit fee if you exceed your credit limit by $1.

"That might simply be a good cardholder who needs a credit line increase," Broughton says.

A card customer would have to exceed a credit limit by 10 percent before a community bank would charge a fee. Community banks also accept card payments 10 to 15 days after due dates without penalties.

Credit unions give card customers plenty of leeway as well.

Generally, a credit union will accept a card payment 10 days after a due date without penalty. Late fees and over-the-limit fees at credit unions have increased, but average between $12 and $13, according to Credit Union National Association.

Despite the increased profits in the short term, some experts wonder if the credit card issuers will pay in the long run for their efforts to increase fee income.

"Credit card issuers have really backed themselves into a corner where they're now more dependent on fees and fees that relate to negative behavior, such as late fees and over-the-limit fees," says George Yacik, vice president of SMR Research in Hackettstown, N.J.

"That's not a very good plan. That's kind of a dangerous game they're playing."

-- Posted: March 16, 2003