Bank of America introducing 'penalty rates' for late payments

Bank of America Corp. has started telling customers that it may increase the interest rate on their credit cards if they're late on payments.

Notifications sent with bills this month say the Charlotte bank can apply a "penalty rate" of nearly 30 percent to future balances.

A bank spokeswoman said a late payment won't automatically trigger a penalty rate. The bank will review the account to determine if the new rate is required, taking into account other risk factors.

The change will go into effect June 25, according to a customer notice. If the new rate is applied, customers will be notified 45 days in advance.

Under the new policy, the annual percentage rate, or APR, could reach as high as 29.9 percent, according to the notice. If implemented, the new rate will apply indefinitely, but the bank will review accounts periodically to determine if the rate can be reduced.

The bank noted it has e-alerts to remind customers when payments are due. Customers can avoid the penalty rate by not using their card for new transactions.

The bank said it hasn't raised interest rates on existing credit card balances since credit card reform legislation went into effect last year, even if the customer is 60 days late, and it doesn't have plans to do so. The bank didn't previously have a penalty rate, unlike some other issuers.

Last week, Bank of America said first-quarter revenue in its card services unit, which includes debit and credit cards, fell 18 percent to $5.6 billion from the same period a year ago.

At the end of the first quarter, the bank said it had average consumer credit card loans outstanding of $134.3 billion. About 4.8 percent of these balances were at least 30 days delinquent, an improvement from 6.8 percent a year ago.