Summary
Penalty fees and interest rates that rise after a late payment can put lower-income credit card holders into a bind, say credit experts. A bankruptcy bill currently before the Senate may worsen the situation for such cardholders by making it more difficult to enter bankruptcy. There is concern among some activists that it is the cardholders who try to make their payments who end up the worst off.
Original source:
http://www.washingtonpost.com/wp-dyn/articles/A10361-2005Mar5.html
Details
- For more than two years, special-education teacher Fatemeh Hosseini worked a second job to keep up with the $2,000 in monthly payments she collectively sent to five banks to try to pay $25,000 in credit card debt.
- Even though she had not used the cards to buy anything more, her debt had nearly doubled to $49,574 by the time the Sunnyvale, Calif., resident filed for bankruptcy last June.
- That is because Hosseini's payments sometimes were tardy, triggering late fees ranging from $25 to $50 and doubling interest rates to nearly 30 percent.
- When the additional costs pushed her balance over her credit limit, the credit card companies added more penalties.
- Punitive charges -- penalty fees and sharply higher interest rates after a payment is late -- compound the problems of many financially strapped consumers, sometimes making it impossible for them to dig their way out of debt and pushing them into bankruptcy.
- The Senate is to vote as soon as this week on a bill that would make it harder for individuals to wipe out debt through bankruptcy.
- The Senate last week voted down several amendments intended to curb excessive fees and other practices that critics of the industry say are abusive.
- Cleveland Municipal Judge Robert J. Triozzi said last fall when he ruled against Discover in the company's breach-of-contract suit against another struggling credit cardholder, Ruth M. Owens.
- Owens tried for six years to pay off a $1,900 balance on her Discover card, sending the credit company a total of $3,492 in monthly payments from 1997 to 2003.
- No one knows how many consumers get caught in the spiral of "negative amortization," which is what regulators call it when a consumer makes payments but balances continue to grow because of penalty costs.
- "There has to be some onus on the cardholder, some responsibility to manage their finances."
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