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Beware Rising Credit Card Fees

By Jane Bryant Quinn
Sunday, August 18 1996; Page H02

When it comes to fees, credit cards are getting as loaded as bank accounts. What's surprising is that customers make so few complaints. They yell about bank fees but barely notice when their credit card fees go up.

That doesn't surprise economist Lawrence Ausubel of the University of Maryland. His studies show that you underestimate how much you borrow on your cards. On average, you're carrying more than twice as much debt as you think. So you're probably not keeping track of the credit cards' fees, either.

Fees will be rising even higher, thanks to a recent Supreme Court decision. Until now, states could limit the fees charged by any card sold to its residents. But now, they have jurisdiction only over in-state banks. Out-of-state banks can charge any fees that are legal in their own home states.

Not surprisingly, the credit card industry congregates in the most loosely regulated states, including Arizona, Delaware and South Dakota.

The only costs consumers pay much attention to are the annual fee and the introductory interest rate. As a result, they both have dropped, said Robert McKinley of RAM Research Group in Frederick, Md. More than half of the cards charge no annual fee at all or waive it if you ask. The rest charge $15 or $20 ($35 or more for gold cards).

What they lose on the front end, however, card issuers gain on the back. Here are the fees to watch for in any credit card offer:

Late fees. If you don't pay on time, you're commonly charged $15 and as much as $25. That's up about 50 percent since 1990.

When late fees are charged. Traditionally, you've had 30 days to pay the bill. Today, the average is 18 days. Some issuers penalize you for being just one day past due.

Penalty interest rates. If you pay late, exceed your credit limit or have a deteriorating credit report, the card issuer might raise your interest rate. You could pay an additional 3 percent to 10 percent for a year or more.

Cash advance fees. When you take an advance, most cards charge you interest right away, with no 30-day grace period for payment. About half the issuers charge an interest rate 2 percent to 6 percent higher than on other unpaid balances. On top of that, there's usually a one-time cash-advance fee of 2 percent to 5 percent.

Balance transfers. When you transfer unpaid balances from an old card to a new one, the new one usually treats them the same as purchases. But some issuers treat them as costly cash advances. This may not be disclosed when you sign up, so check it out.

Fuzzy pricing. The credit card offer may tout an interest rate "as low as 7.9 percent" but "subject to credit history." When you apply, you're told that your credit history isn't good enough. Your card comes at a higher rate. You also may not get as large a credit line as was advertised.

Billing method. Most cards use your average daily balance for calculating interest charges. But a few, like Dean Witter's Discover, use the awful two-cycle billing.

Two-cycle billing doesn't affect you if you always pay in full or always carry a balance. It catches people who pay in full for a while, then carry a balance -- and charges you an extra month's interest every time it happens. R.K. Hammer, Investment Bankers, in Thousand Oaks, Calif., sees two-cycle billing as a growing trend. It can cost you as much as four extra months of interest a year.

Compounding rate. Most cards compound your loan interest monthly, but a few are switching to daily. That costs you a little more. Beware the phrase "daily periodic rate" in the disclosure.

Slamming. That's when you're charged for extras that you didn't order, like a shopping service or credit life, disability and unemployment insurance. Watch for them on your account statement.

Low introductory rates. They're fine as long as they last, but what counts is the regular interest rate. Good credit risks don't have to pay more than 12 percent to 15 percent.

Local banks and credit unions often have the lowest-priced cards. To shop for low-rate and low-fee cards from bigger banks, send $5 for CardTrak, Box 1700, Frederick, Md., 21702, or look free on the Internet at http://www.cardtrak.com.

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