Bank of America will soon join most of the other major banks in charging customers a high penalty APR if they miss their payments. If a cardholder misses a payment, he will see his interest rate on new purchases skyrocket to 29.99% after 45 days. In addition, Bank of America will continue to impose its $35 late fee. All banks that enforce a penalty APR must give 45 days’ notice before the rate increase takes effect, per the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Most household-name banks charge a penalty interest rate. Chase and Bank of the West hike interest rates up to 29.99% and levy a $35 late fee, just like BofA; Citizens Bank imposes the same interest rate but charges a $39 late fee. On the other hand, Wells Fargo stopped charging penalty interest rates in July of last year, and Zions Bank has never increased a cardholder’s APR in response to a late payment. See the table at the end of this article for a list of banks that do and do not have penalty interest rates.
Banks levy fees in advance of the Durbin Amendment
Bank of America’s card unit, which includes both credit and debit cards, disclosed in its earnings report that revenues declined 17.6% from last year, to $5.6 billion in the first quarter of 2011. In reaction to the tighter regulation imposed by Dodd-Frank, new bank fees and charges have sprung up left and right. We wrote about Bank of America’s $59 fee levied on high-risk customers, and Citibank will charge credit cardholders who don’t put a minimum amount on their cards every year.
Coincidentally, Bank of America’s new penalty APR policy will take effect on June 25th, exactly four days after the Federal Reserve implements the debit interchange fee regulation mandated by the Durbin Amendment. Although the “swipe fee” for a debit card is less than that for a credit card, the high volume of debit purchases means that banks stand to lose not-insubstantial revenue from debit interchange.
Banks, from large nationwide behemoths to small, not-for-profit credit unions, have threatened or implemented program cuts in anticipation of the Durbin Amendment. Chase explicitly tied the cancellation of its debit rewards program to interchange regulation; Pittsburgh-based PNC nixed rewards on free checking accounts. Multiple surveys of credit unions indicate that if the Durbin Amendment is implemented as planned, they will have to cut services or raise fees. In addition, many banks tout the benefits of prepaid debit cards, especially for teens, which garner substantial profits from monthly and reloading fees.
Some banks that charge a penalty APR:
- Bank of America, Chase, and Citizens Bank – 29.99%
- Capital One – 29.4%
- US Bank* and American Express – 27.24%
*levied primarily on business or secured cards; most personal unsecured credit cards have no penalty APR
Some banks with no penalty APR:
- Wells Fargo
- Sovereign Bank
- USAA Bank
- Zions Bank
- A number of credit unions, including Pentagon Federal