Friday, September 21, 2007

Are Credit Card Late Fees due to Carelessness a Rip-Off?

Many people miss a credit card payment by a few days due to inattention or some circumstance. The bank continues to add on and receives its interest but it also tacks on a healthy monthly late fee. Are late fees excessive? And are they a Rip-off?
clipped from

credit cardPeople who get hit with penalty fees on their credit cards may not necessarily be strapped for cash or in greater risk of default.

A sizable share of those customers — who face penalties from a missed payment or for surpassing a credit limit, for instance — actually had enough money in their bank accounts to avoid the added costs, according to a new study. Instead, inattention or carelessness often plays a role in spurring the mistake.

“Individuals who make such mistakes can be very attractive to the banks, because while they pay the penalty fees, mistakes caused by inattention do not necessarily signal an increased risk of future credit card default,” say a group of business school economists — Barry Scholnick of the University of Alberta, Nadia Massoud of York University and Anthony Saunders of New York University – in a paper that’s being presented today at a conference of the Federal Reserve Bank of Philadelphia.

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