He missed one payment by a day when Chase, the card issuer, changed his due date. Then his check bounced.
He replaced the money six days later. But it was too late.

His rate of 5 percent skyrocketed to 28 percent. His protests fell on deaf ears. His letters met with cordial, corporate responses sending the same message: Too bad.

Consumers like Minor, who tote hefty balances and make small payments, are prime prey for banks that lure card users with flashy offers and endless ways to borrow, then trap them under mounting balances, fees and interest.

It's a slow, steady tightening that keeps consumers paying until they wise up or wash out.

"That's my opinion of this industry," says Minor, 38, "is that they're just waiting for an opportunity to pounce on you."

The credit card clash

Banks face increasing ire not only from customers but also from critics and regulators.
Consumer complaints about credit cards have skyrocketed since the early 1990s — growing more than 50 percent for some banking sectors.

Fees and penalties keep climbing, and fine-print contracts leave consumers unable to follow rules they can't understand, the U.S. Government Accountability Office said in a recent report on the industry.

Sen. Carl Levin, D-Mich., commissioned the GAO report and said in a recent speech, "If credit-card companies do not promptly take the initiative to clean up their industry, Congress and the regulators ... must take action."

Banks say they want to clarify the contracts. The industry insists that credit cards are essential to the economy — and that penalties are the price of catering to risky borrowers.
The News & Record contacted seven issuers of the most commonly used credit cards for this story: JP Morgan Chase, Bank of America, Capital One, Citigroup, HSBC Bank, Washington Mutual and Wells Fargo.

Only Chase agreed to answer questions about fee policies. The others did not respond or referred questions to the American Bankers Association.

When asked how banks view the perception that they are ruthless and predatory, ABA spokeswoman Tracey Mills said, "Bad customer service happens in all industry. And it's unfortunate when a customer experiences bad customer service. But looking at the broad picture at the millions of customers and how competitive this business is, banks can't afford to lose customers and provide bad customer service."

Customers need to tell their banks about poor service, she said. "And that input makes the industry better."

An easier path to debt

Forty years ago, a couple like Bruce and Heidi Minor, who married just out of college in 1990 and lived on credit, might not have qualified for a card. Today, the power to borrow is painless, anonymous and open to almost anyone.

Since 1990, the average household's credit card debt has more than tripled — to more than $9,000, according to CardWeb.com — even though many issuers no longer charge annual fees and offer lower annual rates than those available before 1990. As the number of cards soared from 50 million in 1980 to nearly 700 million in 2005, payment options, ways to borrow and account configurations exploded in variety and complexity.

That made it easier for the Minors, who live in Jamestown and have two young children, to dig themselves a hole. The couple's debt load, on cards alone, peaked around $40,000 in March 2002, Bruce Minor says.

Encouraging customers to keep large balances — and cracking down on those who make mistakes — helps banks offset losses on promotions, rewards programs and cardholders who pay their bills in full.

Though profits for the largest issuing banks have remained fairly stable in recent years, their revenues from penalty fees and penalty interest have grown significantly since 1990, the GAO found. Banks make it hard for consumers to sort out those penalties, then use them with a hair trigger.

Glenn Turgeon, a Greensboro retiree, manages his own investments, uses credit cards for convenience and rarely goes into debt. Penalties sought him out anyway, when a bill for a card he had used for a decade did not arrive in the mail. His bank instantly boosted the AT&T MasterCard rate to 30 percent, he said.

"I think they're becoming ruthless," Turgeon, 52, said. "There's no benefit of the doubt. In my case, it's made no difference to them that I made payments for 10 years."

When the payment on Minor's Chase card didn't arrive Nov. 22, 2005, he was slapped with a $39 late fee. When his check bounced, Minor picked up another fee — $35.

Between fees and penalty interest, his debt load with Chase grew $43 higher in one month. He was paying more in interest — $98 a month — than on the principle balance.

'Fighting this epic battle'

Armed with private credit records and data on buying habits, banks can profile millions of consumers in an instant.

Banks want customers who will borrow $3,000 to $5,000, then take up to 10 years to pay, said Ronald Mann, author of "Charging Ahead" and a professor at the University of Texas.

"If they can get you to pay minimum monthly payments for three or four years, then if you default, they've already made their money," Mann said.

The industry calls this "risk-based pricing" and says it puts the burden on debtors with problems. It also helps issuers target endless card offers at "subprime" borrowers, high-risk consumers likely to miss payments and produce steady fee income for the company.

Some say the practice leaves consumers powerless.

"You're fighting this epic battle against massive behemoths who will just flush you and go to the next guy," said Brad Stroh, CEO of Bills.com.

For Lisa Schenk, of Winston-Salem, it meant the banks bore down on her no matter how much she worked to pay off her debt and get out from under a 31 percent penalty rate. Once she missed three payments on a card about 10 years ago, "all bets were off," said Schenk, a 52-year-old mental health and substance abuse counselor.

"They are acting like loan sharks instead of like respectable, legitimate businesses," she said. "And they certainly didn't treat me with respect."

More choices, more perils

In May 2004, Bruce Minor moved $4,780 in debt from three credit cards onto a Chase card he'd had since 2001. The reason: a promotional balance-transfer rate of 5 percent for the life of the loan.

But that wasn't the only rate on that account.

New purchases carried a rate just below 12 percent. Cash advances could be had at close to 23 percent. The potential for these rates to change — and the complex way they were calculated — was detailed in the finest possible print on the back of his monthly statements.

Most major cards charge up to three rates, the GAO reported.
Promotional rates as low as 0 percent get consumers to sign up, while higher, variable rates on balance transfers, ATM withdrawals and other services keep them paying.

Glenn Turgeon found, to his surprise, that the 8 percent promotional rate that inspired him to move $5,000 from one card to another didn't apply to the $150 transfer fee. That amount was put in a separate category — at 17 percent interest.

If card users miss one or two payments, bounce a check or max out a card, their rates can climb. Many banks now raise a customer's permanent interest rate to 30 percent or more for a late payment.

Top that off with rising fees, and you'll see how consumers get squeezed. Average late fees rose from $12.83 in 1995 to $33.64 in 2005, an increase of more than 160 percent, according to CardWeb.com.

Only a minority of cardholders pays penalty interest and fees, but that number also is growing, the GAO said. The portion of active accounts with interest rates above 25 percent grew from 5 percent in 2003 to 11 percent in 2005. And 35 percent of active-account holders paid at least one late fee in 2005.

Researchers say banks make it hard to avoid such penalties by mailing statements closer to the due date and monitoring the hour payments arrive, not their postmark date.

And they have plenty of motivation. Non-interest income, which includes fees, now makes up more than half of banks' income, the Federal Reserve reported last year.

Interest is important, though, the ABA's Mills said, and the grace period is like a free loan.

"Banks want to ensure that customers have enough time to pay their bill," she said, "but they also have an interest in receiving payment as soon as practicable because the sooner payment comes in, the sooner a bank can use the funds for other purposes."

A Chase spokeswoman said the bank has not changed its 20-day grace period for years.

Falling over the fine print

Minor's statements show a change in his Chase payment due date in November 2005 but do not cite a reason for the switch. Until then, he'd been paying the bills online, automatically, on the 23rd of each month — a few days early.

When he questioned Chase over the phone, an operator told him that he'd received a pamphlet about the change. That leaflet isn't anywhere to be found in Minor's records.

"At the end of the day, I had to just believe them," he said. "I had to just give up."

His new due date is noted at the top of his October statement. A paragraph at the bottom says: "Please note that your due date may have changed and may vary each month."

He can't deny that fine print.

"I'm not trying to sit here and say that it's all their fault," he said. "I'm just saying that, as trade practices go, that's kind of sneaky."

Cardholders are at a disadvantage when it comes to reading contracts. Half of Americans read at an eighth-grade level, but the GAO found that most card documents are written well above that.

Take a look at any card contract and you'll find disclosures buried in bulky blocks of tiny type. Specifics on fees are one place, while information on rate changes and calculations are elsewhere.

Banks are working with the Federal Reserve Board to improve the language, Mills said.

Meanwhile, the responsibility falls to the public to pick through dense financial papers to keep from, as Minor said, getting "reamed."

Banks "can make a lot of money off of unsophisticated people," said Stroh of Bills.com. "It's a customer acquisition business and that's it."

'It only takes one leader'

Banks have had free rein to set rates for their own credit cards since 1978. That's when the U.S. Supreme Court ruled that the maximum rate allowed in a bank's home state is the only one that matters.

Major banks responded by moving their credit-card operations to states including Delaware and South Dakota — which have no rate cap. Their loose laws apply to cardholders throughout the country — so residents of North Carolina, where the cap is 18 percent, still pay much more than that.

"As a statement of policy, it has some value," Mark Pearce, the N.C. deputy commissioner of banks, said of the state's rate cap. "But it doesn't really affect much of what's going on in the credit card market. ... So much of the regulation of credit cards occurs at the federal level."

Federal regulators have made some recent efforts to shore up consumers' finances. Democratic members of a U.S. Senate committee took credit industry executives to task in late January over rising late fees, penalty interest and aggressive marketing.

Unless federal regulations get stronger, Americans will have little defense against powerful and aggressive card companies, says Tamara Draut, of the nonpartisan advocacy and research group Demos.

Change will come only when consumers fight back, Draut says. "It only takes one leader to really take this issue and run with it because I think there's a lot of unchannelled frustration by American consumers on the way they're being treated."

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Capital One Credit Card

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