Bank of America, one of the nation's top controllers of credit card debt, recently announced that it would increase the penalty interest rates on accounts that fall delinquent to 29.99 percent, according to a report from Reuters.Cardholders will be given their 45 days advance notice of the change – which is mandated by federal law – within the next few days.
This is the first increase in penalty interest rates on delinquent credit card debt that Bank of America has implemented since the Credit Card Accountability, Responsibility and Disclosure Act was enacted in 2009, the report said. Most of its largest competitors, including JPMorgan Chase and Wells Fargo, have already done so.
However, these financial institutions may want to be cautious, Robert Hammer, the head of R.K. Hammer Investment Bankers, told the news agency. By adding higher rates on credit card debt and more fees, financial institutions are walking a dangerous line between driving revenues higher and alienating existing customers to the point where they no longer feel it necessary to have an account with the lender.
But Bank of America notes that it will not simply tack the penalty rate onto any customers' account when they are just one day behind on their credit card debt payments, the report said. Instead, all delinquent accounts will be reviewed on a case-by-case basis, and the 29.99 percent rate will only be applied in special circumstances.
"We are committed to providing our customers with the clarity, choice and control they need to understand and manage their bank accounts," Bank of America spokeswoman Betty Riess told the news agency.
The lender has added the new penalty rate in response to its consistently dropping debit and credit card revenues, which declined 17.6 percent in the first quarter of the year over the same period in 2010, the report said. Earlier this year, Bank of America added a $59 annual fee to a small portion of its credit card accounts, but this charge will not be applied on statements until May.
The lending industry believes the Credit CARD Act has significantly restricted its ability to earn revenues, and many institutions have tried to skirt the law with higher rates and fees.