Timing is everything for some credit card payments

What time is your credit card payment due? Yes, not what date is it due (though that, of course, is important). But do you know the cut-off time your credit card company sets for processing payments? For many credit card issuers, missing that cut-off time on the due date -- even if you miss it because of U.S. Postal Service problems or issues far beyond your control -- means they tack on a $39 late payment fee.

What time is it?
This question of time is coming up more often these days as more consumers realize they're getting hit with late fees. Too many late payments puts you at risk of defaulting on your credit card agreement and getting an interest rate increase.

This little gem was in the fine print of a BP/Amoco Chase gas credit card:
 
"If your payment is in accordance with our payment instructions and is made available to us on any day except December 25 by 1:00 p.m. local time at our post office box designated for payments on this statement, we will credit the payment to your account as of that day. If your payment is in accordance with our payment instructions, but is made available to use after 1:00 p.m. local time at our post office box designated for payments on this statement, we will credit it to your account as of the next day."

Please note: I have deliberately ENLARGED this print to call attention to it. You won't likely get this kind of service from the credit issuer. The type on the back of your monthly statement may be this big.

Anyway, the "local time" in this case is Illinois (central time zone). The fine print goes on to say that if you don't follow the instructions for placing the payment stub in the envelope, including the account number on your check and making that out to the appropriate division, the payment could be subject to a 5-day delay before it is posted to your account.

New disclosure rule
The fairness of the practice of setting cut-off times for credit card payments has caught the attention of federal regulators. The Federal Reserve Board, which mandates how lenders must disclose important facts about their loans (including credit cards), has proposed a new rule aimed at addressing fairness concerns.

The Fed wants to require credit card issuers to post cut-off times near the due dates on the FRONT of monthly statements if the deadlines fall before 5 p.m. Currently, there is no requirement for notifying cardholders about cut-off times, although many lenders provide this information on the back of the statement, often in teenie-tiny print.

Victor Barry, a Chicago credit card owner, wrote the Fed: "I do believe they are trying to make their customers miss payments so they can extract their exorbitant fines and fees..."

Lenders contend the current disclosure is clear. Some credit card issuers give customers a few days cushion before assessing late fees (referred to by Discover bank as a "silent" late fee grace period); other banks do not. Says the Fed: "Consumers would be able to make better decisions about when to make payments in order to avoid late-payment fees and default rates if earlier cut-off times such as 12:000 p.m. were more prominently disclosed."

Not good enough, says the National Consumer Law Center, a Massachusetts-based non-profit consumer advocacy group. The group filed an 87-page comment with the Fed regarding a host of revisions in the disclosure rules (called Regulation Z).

"Cut-off times offer creditors the opportunity to manipulate payments in order to increase late fees and penalty rates. They also cause consumers a high level of frustration and a sense of helplessness," the group contends. "In reported cases, creditors have used times as early as 9 or 10 a.m. as the cut-off time."

Good enough for the IRS
The law center notes that credit card users have no control over delays that may occur during the mailing process (Does your U.S. mail arrive at the same time every day?). Yet they are penalized with late payment fees. A better alternative, the law center says, is to use a postmark date as the cut-off. If it's good enough for the U.S. Internal Revenue Service on April 15 each year, why can't creditors accept it?
 
Advocates also cautioned about due dates that are set on non-business days -- when there's no way a payment can be processed. "Creditors should not be allowed to rig the system to trap unwary consumers," the law center writes.

Consumers are slowly catching on to what's happening -- and they're angry about it. Colleen O'Hare told the Fed she pays her bills online but the payments are rarely posted on the day of her transaction.

"I went into the Washington Mutual site to pay my credit card early in the morning on the date it was due and I was 'forced' to select the next business day as my payment date. I could not pay the same day without adding an 'express fee.' Because of the fact that I was forced to select the next business day, I was charged an exorbitant $39 late fee. This is an outrageous practice and I believe an unlawful practice of Washington Mutual’s. My American Express cards not only give me 10 days grace period without charging any late fee, but they also clear the same night that I submit my payment to them. The same holds true of my other credit card companies."

Angela M. Stockton had a similar complaint:

"I recently canceled an AT & T Universal Visa card after being a customer for over 20 years. I was irate that AT & T, which had used the 19th of the month as a due date for most of those years was gradually moving it earlier and earlier, until the last bill I received had a due date of the 14th. I'm convinced that they were counting on my not reading the due date so that I'd mail my payment late and they could charge me a late fee.

My husband has a Chase Freedom MasterCard which has resorted to the same due-date creep...Credit-card companies should not be allowed to change due dates willy-nilly like this."

See related articles: "Fed backs rules to curb deceptive credit card practices," "Credit card industry gets fire from Senate," "Study: Too much optimism leads to late credit card payments"