The news media company Reuters reports that now when customers of Bank of America miss a monthly credit card payment they may get socked with a really stiff penalty. Instead of just hitting them with the usual one-time fees and charges, Bank of America says that it may also impose much higher interest rates on future credit card purchases as a punitive measure to discourage delinquent payments.
These rates are no joke, either, because they can go as high as 30%. To put that into perspective, if you add 30% to a debt each year then the debt will more than double in just three and a half years. Imagine what that kind of additional interest could do to magnify the burden of credit card debt for those who miss a payment and wind up paying that much on their subsequent purchases or balances carried forward. The bank plans to implement the new policy in June, and the process will involve analyzing the cardholder’s credit risk profile and then determining how high the penalty rate should be. In accordance with new federal rules the bank will also give the customer at least 45 days of prior notification before the rate hike goes into effect.
A customers other risk factors, a spokeswoman said, before determining whether a penalty rate will be initiated and what the rate will be. The customer would receive a 45-day notice before any rate increase takes effect. Bank of America is one of the big banks raising fees like those for ATM transactions in order to raise revenues and cut losses. The company reported shrinkage in its credit card division revenues of about 18% for the first quarter compared to the same period in 2010. Meanwhile it has also started to charge annual fees of $59 to some cardholders – which has prompted some of them to cancel their accounts and look for plastic elsewhere.
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