Gotcha! - delayed postings, late fees and interest penalties have First USA customers seeing red - credit cards

Kiplinger's Personal Finance Magazine, Nov, 1999 by Kristin Davis

For seven months, First USA continued to pile late fees and interest onto Richard Deadrick's account, until the total reached more than $150.

Delayed postings, late fees and interest penalties have First USA customers seeing red.

"God, I hate this company!!!"

Rarely has a business inspired such visceral outrage as First USA, one of the nation's largest issuers of credit cards. Richard Deadrick, for example, calls the company "vicious" and "predatory." Deadrick, of McGaheysville, Va., regularly mailed his credit card payments to First USA's payment-processing center in Atlanta a week before the due date. "I felt safe that a week was enough time," he says. But twice in early 1998 he was charged a $25 late fee. The first was waived after Deadrick complained. He decided to pay the second ("it may have been close") and cancel the account. But the late-fee payment, too, was deemed late, and he was charged another $25. This time, he refused to pay and canceled the account in writing.

Over the next seven months, First USA continued to pile on late fees and interest charges, Until the total reached more than $150. Letters to the president of the Wilmington, Del.-based bank, the federal Office of the Comptroller of the Currency (OCC) and Delaware's attorney general didn't help. In January, Deadrick e-mailed Kiplinger's to ask for assistance. After we placed a call to First USA's vice-president of corporate affairs, "all of a sudden, out of the clear blue sky," says Deadrick, "a credit comes through."

Complaints like Deadrick's about First USA's unfair fees and charges have been pouring in, not just to Kiplinger's and other media, but to Better Business Bureaus, federal and state regulators, plaintiffs' attorneys who have filed class-action lawsuits against First USA, and the public at large through Internet discussion groups.

Customers, and even former employees, spew forth venom on at least two Web sites devoted to just that purpose. They profess "unmitigated hatred," bemoan "how I got screwed," brand the bank as a "den of liars and thieves," and worse. One Web page opens with an animated graphic of a man marching barefoot across the screen. When he reaches the words "1st USA," he drops his drawers, grins and douses the logo, a la Calvin and Hobbes.

By far the most incensed are consumers who say they have been slapped with late fees and sometimes sky-high penalty interest rates, despite having mailed their payments well before the due date. "All the other checks I mailed at the same time as the First USA check were cashed in a timely manner," says James Manos of Cranford, N.J. "It's extremely hard to believe that it takes more than 20 days for my check to reach them. I think they're making a lot of money on fees and finance charges that they have no right to charge."

First USA is not the only bank to come under fire for imposing unfair fees and charges. Providian Financial Corp., for instance, refunded $20 million in late fees last summer after several lawsuits were filed in the spring. "We have been through this with others," says Frances West, president of the Better Business Bureau in Wilmington, Del. "This is just First USA's turn."

Over the line?

Banks that issue credit cards are also in the doghouse with John Hawke, who as Comptroller of the Currency is the nation's chief regulator of federally chartered banks. At a banking-industry conference in June, Hawke warned of "mounting evidence of an increase in banking practices that are seamy, if not downright unfair and deceptive--practices that virtually cry out for government scrutiny." Some of that scrutiny has been directed toward payment-posting practices at First USA and other banks. During the first half of 1999, the OCC received 2,793 complaints about First USA (about one-fifth of which alleged late posting of payments), more than for the next nine largest bank issuers combined.

Sen. Phil Gramm (R-Tex.), who is chairman of the Senate Banking Committee, has also directly received complaints about payment-crediting delays at First USA, and in April he asked Hawke to look into the allegations. "OCC supervisory staff has already met with management of the banks," Hawke wrote in response in June. "If our investigation determines that a bank has violated the Truth in Lending Act requirements for prompt crediting of payments, we will direct the bank to change its procedures and to adjust the customer's account to deduct any related late charges or finance charges. In some instances, corrective actions have already been taken."

First USA acknowledges that it has been in talks with OCC bank examiners, and that some payments made to a third-party payment-processing facility in Phoenix were not posted promptly. But Carter Warren, First USA's executive vice-president of portfolio marketing, says the bank's internal audits caught the problem and that the OCC came in "at our request, frankly."

"If you've got too many payments one day and you don't have enough people to process them, our policy is that the payment will be date-stamped and backdated to the day we received it," Warren says. "What was happening in Phoenix was that those accounts were not being backdated."