What is a penalty interest rate on a credit card?

A penalty interest rate on a credit card is a much higher interest rate than the regular interest rate that is applied to the account. This higher interest rate is designed to act as a deterrent for customers to avoid getting into credit card debt. In California, a credit card company must notify the cardholder of the penalty interest rate before it is applied. The penalty rates usually range from 24 to 29 percent. Additionally, if the credit card company does raise the interest rate, it must notify the customer in writing about the new rate and the effective date of the rate change before making the adjustment. The credit card company also needs to provide a written statement outlining what will trigger the higher interest rate, such as a late payment or exceeding the credit limit. California law also states that a credit card company needs to inform the cardholder of situations where the penalty interest rate will be removed. Finally, the California credit card law requires that credit card companies must provide the cardholder with a plain language summary of all the features of the account, including the penalty interest rate, within 21 days of the cardholder’s request. Overall, the penalty interest rate on a credit card is designed to discourage cardholders in California from getting into credit card debt and to protect consumers from being overcharged due to an unexpected increase in their interest rate.

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What is a penalty interest rate on a credit card?

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