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Credit card late fees are rising

Pay late, and it might cost you $35

Knight Ridder Newspapers

Several of the nation's biggest credit-card issuers have sharply raised the penalty fee they charge consumers who pay their bills late -- causing what's likely to be the biggest monthly fee increase in the industry's history.

All told, five influential banks controlling about 40 percent of the U.S. market now charge a monthly $35 late-payment fee, shattering the industry's previous norm of about $29. That represents an increase of nearly 21 percent in late fees.

"It was what the market would bear," said Robert B. McKinley, who heads CardWeb.com, which tracks industry trends in Frederick, Md. "Once the market gets conditioned to $35, they will all pile on. You'll see."

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The increase has reignited a long-standing debate over whether the fees are fair.

"Nobody is arguing that they are strictly an effort to cover expenses," said Fritz Elmendorf, a spokesman for the Consumer Bankers Association in Arlington, Va. "You have an obligation to make your payment on time, and there's a penalty component to late fees to help instill the proper bill-paying discipline."

Consumer groups complain that the fees far exceed the issuers' actual cost. But industry experts and consumer activists predict such fees are likely to rise even more this year -- and could nail not only chronic late-payers but also higher-grade consumers who only sporadically wait too long to mail their payments or stumble financially.

For instance, many issuers have set "hair triggers" on their payment deadlines, sometimes on weekends, holidays or even down to a specific hour, McKinley said. One issuer set its deadline at 8 a.m. -- too early for procrastinating customers who rushed their checks via overnight mail.

The repercussions go beyond the amount of the fee, however. If consumers pay late twice within a six- or 12-month period, many lenders automatically vault them into a much higher interest rate on their credit-card balances.

For years, late fees had topped off at $29, even though Fleet Credit Card Services cracked the industry's psychological barrier of $30 in 2000. But No. 1-ranked Citibank's fee increase last August apparently emboldened No. 2 MBNA, and giants Discover and U.S. Bank to follow suit this year.

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