EXAMPLE OF INTEREST FEES EXAMPLE OF INTEREST FEES An illustration of a widely used practice in the credit card industry, charging interest on debt that is paid on time but not in full, according to the investigative subcommittee of the Senate Homeland Security and Governmental Affairs Committee: Jan. 1, bill for December charges:

• Customer owes: $5,020

• Paid on time (Jan. 15): $5,000

• Balance: $20 Feb. 1, bill for January charges:

• No new purchases

• Customer owes: $55.21 -- $20 balance from January bill, $34.78 in interest on the $5,020 balance from Jan. 1-15, and 43 cents interest on the $20 from Jan. 16-31

• Paid on time (Feb. 15): $55.21

• Balance: 0 March 1, bill for February charges:

• No new purchases

• Customer owes: 38 cents -- interest on the $55.21 from Feb. 1-15 Note: 17.99 percent interest is assessed on each day's balance and compounded daily. Source: Associated Press COSTLY CREDIT CARD FEE TRAPS COSTLY CREDIT CARD FEE TRAPS Multiple interest rates: You're often charged different interest rates for purchases, cash advances and balance transfers. And most issuers apply your payments first to the balance with the lowest interest rate before applying them to higher-rate balances. Other traps: $39 Late and over-the-limit fees

Card issuers charge up to $39 each time you pay late or exceed your account limit. Many issuers now set cut-off times for when the payment must be received during the day, making it easier to pay late. 3% Cash advance and balance-transfer fees

Most issuers have lifted the cap on these fees, which used to be $50 to $75. Issuers now generally charge 3% of the cash advance or balance transferred. UP 32% Penalty rates Your interest rate can soar to 32% if you pay late or exceed your credit limit just once. UP 32% Universal default Even if you pay your bill on time, some issuers will still raise your rate to up to 32% if you pay late on some other creditor's bill. Digg



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Facebook WASHINGTON (AP)  An Ohio man whose $3,200 credit card debt mushroomed to $10,700 with interest and fees told his story Wednesday to senators who denounced the industry for confusing billing practices and shifting interest rates. Executives of three major banks defended their credit card practices as responsible and responsive to consumers' needs in testimony at the hearing of the Senate Homeland Security and Governmental Affairs' investigative subcommittee. Those from Citigroup Inc. and Chase Bank USA said their companies were eliminating some practices — including the one that hit Wesley Wannemacher of Lima, Ohio, with over-limit fees on his Chase card account 47 times although he went over his credit limit only three times. The interest charges and fees on Wannemacher's account more than tripled his debt despite his having made payments averaging $1,000 a year over six years, noted Sen. Carl Levin, D-Mich., the subcommittee's chairman. "Unfair? Clearly, I think," Levin said. He said an investigation by the panel found that "sky-high interest charges and fees are not uncommon in the credit card industry. While the Wannemacher account happened to be at Chase, penalty interest rates and fees are also employed by Bank of America, Citigroup and other major credit card issuers." Richard Srednicki, the chief executive officer of Chase Card Services, apologized to Wannemacher in his testimony. "In this case, we simply blew it," he said. Srednicki said the company has decided it no longer will charge over-the-credit-limit fees to customers who have been in a chronic over-limit position for 90 days. Wannemacher used a new Chase card in 2001 and 2002 to pay for expenses mostly related to his wedding. He had $3,200 in purchases, interest charges of $4,900, 47 over-limit charges totaling $1,500, late fees of $1,100, for total charges of $10,700 as of February. He paid $6,300, leaving a $4,400 balance — which Chase agreed to waive after he contacted the subcommittee staff. "Debt seems to invoke a feeling of hopelessness unlike any other problem I've encountered," Wannemacher testified at the hearing. "When a debtor calls you on the phone and you make a minimum payment, you know that you've made no real progress and that in a month, they will be calling again." Sen. Norm Coleman of Minnesota, the panel's senior Republican, said high interest rates on credit cards, "hefty fees and crippling penalties impede more and more hard-working families from pursuing their American dream." The problem is worsened by the "impenetrable" language of credit card disclosures provided to consumers, he said. While the credit card practices in question are legal, Levin is threatening possible legislation to outlaw them as a spur to the banking industry for voluntary changes. Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd, D-Conn., said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted. Since Democrats assumed control of Congress in January, they have put a number of consumer issues on the legislative agenda. With Americans weighed down by some $850 billion in consumer debt, the practices of the robustly profitable credit card industry are a compelling subject for scrutiny. Citigroup, the nation's largest financial institution, announced last week that it was eliminating the practice of so-called universal default — raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would eliminate some types of interest rate increases that have been criticized. Credit card issuers raise customers' rates and fees, for example, when they believe it is warranted by conditions in the financial markets. But under Citigroup's new policy, rates and fees will be increased before a card expires only if the customer pays late, exceeds his credit limit or pays with a check that bounces. Or if the rate is linked to the prime interest rate, it would rise or fall in tandem. Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Share this story: Digg del.icio.us Newsvine Reddit Facebook Enlarge By Mark Lennihan, AP Practices of some credit card companies 'keep you in debt,' Sen. Carl Levin said. The Senate is investigating late fees. Conversation guidelines: USA TODAY welcomes your thoughts, stories and information related to this article. Please stay on topic and be respectful of others. Keep the conversation appropriate for interested readers across the map.