Penalty rates for credit cards can be quite confusing at times. Some of the more expensive features of credit card usage have been cut off following the new consumer protection act, and yet, there are ways in which faulty usage of the card could prove costly.
While the new act has been introduced to protect consumer interests and the high default APR's were intended to be scrapped, another kind of APR seems to have taken its place. The Card Act was to scrap the APR running at 29.99, the newer version the Penalty APR is in the range of 32+ percent. While there is a slight variation in the rules as far as the Penalty APR's are concerned, it would be applicable to most card users such as:
• Failure to make the Minimum Amount Due on or before the due date and time.
• If a payment is made but returned unpaid.
• Exceeding the credit limit.
Some banks may impose Penalty APR's if the above mentioned points are applicable to any other loan outstanding etc with the bank or any of its related companies. There are some differences between the Penalty APR's and the Default rates that were charged by the issuers such as:
• A 45-day notice period is mandatory before increasing the Penalty Rates.
• The Penalty Rates (APR's) would be applicable only for the future payments, i.e., after the 45-day period.
• In case the account is more than 60 days due with a payment, the APR's can be applied retroactively.
Even though the new credit card rules protect the clients from retroactive rate of interest, there are instances where the card holders simply miss the notices where the increase in interest rates is mentioned. Sometimes, customers who possess a single card have no other option but to pay the Penalty APR's. In spite of these issues, it is still a significant step in the right direction as; the card holders at least have the option to stop using the card in the future.
There is a stipulated time period where punitive action can be taken by the issuers as per the Credit Card Act. If the card holder has paid the minimum amount due for six months in a row before the due date then the APR's could be lowered as per the issuer's discretion.
Card holders can now negotiate further and issuers oblige as they risk losing their clients otherwise. With a good credit score, issuers are more flexible in decreasing interest rates. Hence, it is advisable to pay on time, pay a bit more than the minimum due, if the whole balance cannot be cleared.