The Baltimore Sun

Credit card issuers are using a host of measures to make sure customers make their payments and fees keep coming in, now that banks are feeling as squeezed as their financially pinched consumers.

Some card issuers are clamping down on late payments and grace periods as they near new, stricter credit card regulations that go into effect in July 2010, consumer advocates say. Some lenders also are working out payment plans and, in certain cases, lowering interest rates for delinquent customers who are having a hard time keeping up with their bills.

A slumping economy is forcing businesses of all kinds to help consumers find ways to pay their bills. But credit card issuers are facing more acute problems as consumer loan delinquencies and defaults rise amid a widening recession.

The industry also is bracing for sweeping changes approved last month by the Federal Reserve to revamp rules governing penalty fees and rates. Among other things, card issuers will be required to send a bill at least 21 days before the due date so consumers have time to make payment before getting slapped with a late fee. And bankers won't be able to raise rates on existing balances unless a payment is more than 30 days late.

"They see the writing on the wall, and when these rules take effect, their ability to impose penalty rates and penalty fees are going to be so greatly curtailed that in the interim period they'll be aggressive in trying to impose fees to the letter of the law that's in the account agreements," said Ben Woolsey, director of marketing and consumer research at

With economic conditions deteriorating, card companies are stepping up their collection efforts in hopes of recouping what they can from consumers. They're also taking more telephone calls from cash-strapped customers.

Discover Financial Services has hired staff to respond to customers seeking help and launched a section on its Web site where cardholders can find more information on getting payment assistance.

American Express is calling card members in earlier stages of delinquency and offering payment plans that offer "flexibility around the interest rate, fees and plan length."

And Bank of America is waiving fees and reducing interest rates on monthly payment programs. Last year, the bank said, it modified nearly 700,000 credit card loans.

"We understand that many of our customers are struggling to meet their financial obligations and our objective is to help customers who are experiencing financial hardship," Bank of America spokeswoman Betty Reiss said.

Credit card issuers say terms and the extent of debt assistance programs are made on a case-by-case basis and depend on individual circumstances. But consumer advocates say customers who can afford to pay their bills aren't likely to get much leeway from companies seeking to make up for lost revenue.

Banks are confronting higher charge-off and delinquency rates, while consumer wealth is shrinking amid falling real estate and retirement assets.

Credit card payments that are 30 days or more late rose to 4.79 percent in the third quarter of 2008, up from 4.35 percent in the corresponding quarter a year ago, according to the most recent data available from the Federal Reserve. And charge-offs - debt that banks don't expect to be repaid - edged up to 5.62 percent in the third quarter of 2008, from 4.05 percent in the corresponding period a year ago, according to the Federal Reserve.

Because of falling personal assets and credit card issuers working to curb loan defaults, seriously delinquent customers are now finding themselves in a "position they haven't been in for years to possibly negotiate a debt payment plan," said Ruth Susswein, deputy director of national priorities at Consumer Action in Washington.

Yet some customers with solid credit history are being charged interest rates as high as 32 percent for being late on a payment, Susswein said.

"These days, the good customer may be penalized while the seriously delinquent customer may be getting a breather," Susswein said.

John Ulzheimer, president of consumer education at, says credit card issuers are less flexible in waiving fees for consumers as they have been in the past.

"You could understand their position," he said. "They're hemorrhaging money. Fees are a multibillion[-dollar] revenue channel for those credit card issuers. So it's unlikely they'll be forgiving right now given the position they're in financially."

What's more, lenders have become more stringent in determining when a payment is considered late and imposing penalty fees immediately.

While Peter Garuccio, a spokesman for the industry trade group American Bankers Association, said he hasn't heard whether banks have become less flexible in waiving late fees, banks are generally responding to economic conditions.

In the past year, banks have tightened standards, including lowering credit limits if a customer has become a higher risk and closing inactive accounts.

To avoid penalty fees and rates, pay your bills on time.

Ulzheimer, who is not a big fan of online bill payments, says consumers assume payments go through in real time, which is not necessarily the case.

So pay attention to when your bill is due; many lenders now have time deadlines.

And if you're facing financial challenges, don't wait until you've already missed a payment to contact your lender.

"The sooner you do it, more options will be at your disposal," Garuccio said. "The longer you wait, you have fewer options."

Baltimore Sun reporter Liz F. Kay contributed to this article.

avoiding trouble

Credit card issuers are confronting financial difficulties, much like their consumers. So they are stepping up their collection efforts and trying to work with some delinquent consumers before they get too far behind. But card issuers also are clamping down on payment deadlines, fees and other standards. To stay in the bank's good graces:

* Pay your bill on time - some issuers charge late fees if the bill doesn't arrive by a certain time of day.

* Stay on top of your online bill payment if you use it; don't assume the payment goes through instantaneously.

* Reach out to your lender if you're having financial hardships; don't wait too long.

Source: Interviews with experts

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