By John W. Schoen Senior Producer
msnbc.com
updated 4/1/2007 6:59:17 PM ET 2007-04-01T22:59:17
COMMENTARY

Like a lot of credit card holders, Kelly in Pennsylvania was tired of getting dinged with late fees, especially when she felt sure she paid her bill on time. But unlike many, she stuck to her guns. Meanwhile, Peter in Texas is trying to start a small business — from scratch.

Is there anyway to get around paying a late fee when the check was sent in plenty of time but the credit card company is claiming they received it late? I am questioning this because it happened two months in a row, and they will only drop one fee. Other than the last fee the card is totally paid off.
—Kelly H., West Mifflin, Pa.

Among the long list of fees charged by banks and credit card companies, this may be one of the hardest to beat. Many banks and card issuers include language in the agreement you sign that they can charge fees of $30 or more — or raise your interest rate to as much as 31 percent — if you’re so much as a day late making a minimum payment on your due date.

Some banks and card issuers will even boost your rate if you’re late on another bill — an industry practice known as “universal default.” The theory is that is you miss paying another bill (even if you’re disputing that charge), you’ve somehow become a riskier borrower.

In some cases, these agreements say they have the right to raise your rate “at any time for any reason.” Your only remedy is to pay off the card in full and cancel your account.

Fees have become a huge money-maker for credit card issuers. Late fees now average $34 per month; “over-limit fees” — that’s when you spend more than your credit limit — average $31 per month, according to a recent report by the Government Accountability Office.

After hearing loud complaints from consumers about these practices, Congress has begun holding hearings on the credit card industry and is looking into curbing the most abusive practices.

“The disclosures on calculating interest rates are so complicated that virtually no average consumer can understand them,” Sen. Carl Levin, D-Mich., said at a recent hearing. “In some cases, consumers become overwhelmed with penalty interest charges that can double or triple the size of their debt, and make it nearly impossible for them to pay their bills.”

Levin cited a case in which a card holder overspent his limit three times for a total of $200 and was charged over-limit fees 47 times amounting to $1,500.

The hearings haven’t yet produced new rules for card issuers. Still, they seem to having some impact; Citigroup and Chase — two of the biggest card issuers – recently dropped some of their most punitive practices and said they were reviewing fees and disclosure policies.

But late fees will probably be the last to go. The reason these are so difficult to dispute is that unless you make an electronic transfer or pay by phone, which may generate another fee, you have to prove when the card company received your check in the mail.

On place to start is your canceled check — which should have a stamp on the back indicating when the funds cleared. The schedule for check clearing is complicated and depends on a variety of factors: what bank it’s drawn on, whether it was in-state or out-of-state, etc. But if the check cleared before your due date, your card company will have a hard time arguing that you paid late.

You still have to challenge the late fee, and if the card issuer has logged it as late, you probably won’t get much relief from the front-line customer service representative. The best way to resolve these disputes is by asking to speak to a manager, explain that you believe you paid on time, and making it clear that you’ve been a good customer and will take your business elsewhere if you’re not satisfied.

If you can’t resolve the matter with the manager on the phone, get their name and address, send them a letter briefly describing what you want done and ask for a reply within 10 days. Then take your letter and the response (if you get one) to the consumer affairs department of your state attorney general’s office and file a formal complaint.

In some states, these cases are handled by the state Banking Department. You can click on our interactive map for contacts in your state.

We’ve found that sometimes just letting them know that you’ve found the right agency for your complaint helps loosen them up a little.

A follow-up:

After calling the company for a third time, Kelly was almost ready to just pay the fee to avoid the bad mark on her credit report. But after contacting us she decided to give it one more shot and asked for a manager:

“I told them my name and told them why I was calling,” Kelly said in a recent e-mail. “They put me on hold and spoke with the manager and came back on and said they know why I was calling and they will make an exception and waive the fee at this time. but this would be the last time. 

“I guess they were so sick of me calling about this issue that they just wanted to get rid of me.  That is OK because I'm not planning on using their card again.”

Business bootstraps
I want to start up my own business. The only problem I have is that I have no means or capital to start from scratch. I really have to borrow or ask for a loan. Is there a way to start a small business from scratch if you have nothing to start with?
—Peter D., Mabank, Texas.

Some people borrow against their house or load up multiple credit cards. But that’s very risky.  Statistics vary widely, but one 2002 study by the Small Business Administration found that only half of all new businesses were still standing after four years. And the failure rates for some types of business are even higher. So if you fund your new business with personal borrowing, and things don’t work out, you’ll be left with a pile of debt.

Some small businesses don’t really start until they make the first sale. We know of one enterprising young pair who bought a few used computers, fixed them up and sold them on eBay — making a few hundred dollars each. They took that money, bought some more, and kept reinvesting the profits and finding new sources of used computers. Last we heard, they had generated over $100,000 in sales in their first year of operation.

A lot depends, of course, on what kind of business you’re trying to start. If you want to open a restaurant, you’ll need a chunk of money upfront to get started. But if you’ve never managed a restaurant — or at least gotten a good look at the books of a business like the one you hope to own — you risk making some major mistakes early on.

Raising capital is often a major hurdle for new businesses. But it’s not always a good first step. It’s usually more important to identify (1) what it is that you love to do — because you’re going to need to work extremely hard at it, especially at the beginning; (2) what you’re good at (not always the same as No. 1); and (3) whether this thing you like to do will produce a product or service that other people want or need.

Once you got that combination figured out, raising the money by convincing someone to back your idea is a lot easier.

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