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CORRECTED - BofA to introduce credit card penalty rates in June
April 27, 2011 / 5:28 PM / 7 years ago

CORRECTED - BofA to introduce credit card penalty rates in June

(Corrects paragraph 8 to show Wells Fargo suspended penalty interest rates in July 2010.)

* Penalty rate could be applied after missed payment

* Rate could reach 29.99 pct, apply to new purchases

* Follows other issuers in instituting penalties

By Joe Rauch

CHARLOTTE, N.C., April 26 (Reuters) - Bank of America Corp (BAC.N), one of the largest U.S. credit card issuers, plans to start charging penalty interest rates for credit card customers who miss payments.

Beginning on June 25, the bank will begin charging a penalty rate of as much as 29.99 percent to customers who make late payments on their credit card balances, a company spokeswoman confirmed on Tuesday.

Unlike a wholesale interest rate increase, borrowers would be charged the penalty rate only on new purchases after the rate is changed, and a customer will receive 45 days advance notice of any penalty rate being placed on their account.

Customers will be notified of the account change this month.

The bank has not had a penalty interest rate on its credit cards since the industry was overhauled by Congressional legislation in 2009.

The Credit CARD Act restricted the fees lenders could charge their customers and their ability to raise interest rates.

Banks have been trying to recoup revenue lost under the new law. They are also facing another squeeze on that revenue from the U.S. Dodd-Frank financial reform law passed last year.

Most U.S. credit card lenders, like JPMorgan Chase (JPM.N), have already added penalty interest rates to their accounts. Wells Fargo (WFC.N) used penalty rates on their accounts, but suspended their use in July 2010.

“There’s this fine line BofA and everybody else has been walking: what can we reasonably charge” without alienating customers, said Robert Hammer, who brokers card portfolio sales as head of R.K. Hammer Investment Bankers.

BofA spokeswoman Betty Riess said a missed payment will not automatically trigger the penalty rate, and an account will be reviewed before it is implemented.

“We are committed to providing our customers with the clarity, choice and control they need to understand and manage their bank accounts,” she said.

Bank of America’s card unit -- which includes debit and credit cards -- recently reported that revenues declined 17.6 percent to $5.6 billion in first quarter 2011 from $6.8 billion a year ago.

The penalty rate is the second change for BofA credit card customers this year.

Earlier this year, BofA introduced an annual fee of $59 for less than 5 percent of its credit card accounts. That fee will begin appearing on customers’ May statements. (Reporting by Joe Rauch; additional reporting by Maria Aspan in New York; Editing by Tim Dobbyn)

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