CardHub.com has an interesting survey of the literature surrounding penalty interest rates on credit cards. Many of the biggest card issuers rank as “poor,” on the quality and transparency of their disclosures, although Wells Fargo stands out as being particularly good.
Most distressingly, the Federal Reserve itself, in its sample statement language, fails on some key points. For instance, the Fed’s model flyer says this:
How Long Will the Penalty APR Apply?: If your APRs are increased for any of these reasons, the Penalty APR will apply until you make six consecutive minimum payments when due.
Sounds clear, right? Well, it is clear — but it’s also highly misleading. Because the fact is that once your APR is increased, the bank doesn’t need to bring it back down from the penalty level ever, at least for new purchases. CardHub explains that “for new transactions, the credit card companies are not restricted and the Penalty APR could apply indefinitely” — something you’d never guess from reading the Fed’s language.
The Fed, of course, is going to house the new consumer financial protection agency, and it would be great to see the Fed doing a better job of writing this kind of statement than Wells Fargo. But I fear it might take a while for the technocrats at the Fed to learn to speak in clear English.