AUSTIN, Texas, Nov. 10, 2014 /PRNewswire/ -- Those who fall behind in credit card payments face an average penalty rate of 28.45 percent, according to CreditCards.com's survey of 100 U.S. credit cards, down slightly from a 28.60 percent average APR in 2012. Penalty rates are the often-stratospheric APRs that a bank charges a cardholder for making a major mistake, typically being 60 days or more late with a payment.
For cardholders who carry a typical balance and pay typical rates, getting hit by a penalty rate can be costly. For example, consider a cardholder who carries a $4,000 balance on a card charging 11.82 percent -- the average rate for those carrying a balance, according to the Federal Reserve. At the 28.45 percent average penalty rate, the cardholder would have to pay an extra $665.20 in interest a year.
"This drives home, once again, just how incredibly important it is to pay your bills on time every time," said Matt Schulz, CreditCards.com's senior industry analyst. "Debt can grow quickly even with an average interest rate. But when you're hit with a penalty rate, things can get out of control in a hurry."
Fortunately for cardholders who carry a balance, the number of issuers using penalty interest rates has decreased dramatically since the passage of the 2009 Credit Card Accountability, Responsibility and Disclosure Act. In 2010, 91 percent of issuers imposed penalty rates. By 2012, the number had fallen to 69 percent. This year, it was just 60 percent.
Among card issuers charging a penalty rate, the lowest, 17.99 percent, is assessed by Pentagon Federal Credit Union's Cash Rewards Visa Standard card. The highest penalty rate, 30.24 percent, is imposed by the NFL Extra Points card from Barclays.
More survey highlights:
- Sixty of 100 surveyed cards have a penalty interest rate of some kind:
- 28 have penalty APRs based on the prime rate plus a specified percent. Rates based on the prime rate can move up automatically when that index rises, as it is expected to in 2015.
- 32 calculate a cardholder's penalty APR based on creditworthiness.
- Only 23 cards disclose penalty rate information in the card terms and conditions; 77 cards required follow-up phone calls or review of cardholder agreements to confirm penalty rate details.
- The CARD Act required lenders to revoke the penalty rate if consumers make six consecutive on-time payments after the penalty rate is applied, but just 38 of the 60 cards make that clear in their publicly available documents.
More information is available here:
The Credit Card Penalty Rate Survey of 100 U.S. credit cards was conducted in October 2014 by CreditCards.com. The 100-card survey pool is the same group of cards used to calculate CreditCards.com's Weekly Rate Report, and is a representative sampling of cards from all major U.S. card issuers. Information was gathered from the card's terms and conditions documents, any publicly available cardholder agreements and phone calls to issuers.
The average penalty APR was determined using the rates provided by the 60 cards that disclosed their single and variable penalty APRs. For the cards with a range of penalty rates based on cardholder creditworthiness, the highest possible APR was used in the average rate calculation.
CreditCards.com, named a "Best Site for Managing Your Credit" by MSN Money, is a leading online credit card marketplace, bringing consumers and credit card issuers together. At its free website, consumers can compare hundreds of credit card offers from America's leading issuers and banks and apply securely, online. CreditCards.com is also a destination site for consumers wanting to learn more about credit cards. Offering advice, news, features, statistics and tools, CreditCards.com helps consumers make smart choices about credit cards. In 2013, 19.5 million unique visitors used CreditCards.com to find the right credit card to suit their needs.
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Senior Director, Corporate Communications