Delinquency clauses are often found in credit card agreements, where a company can increase or decrease interest rates at its discretion. These clauses allow a company to penalize consumers for late (delinquent) payments, typically by increasing the interest rate to a very high level. Delinquent payments are usually those that are late by 30 days or more. The higher the interest rate, the greater the minimum payments will be. This often prevents consumers from paying off the principal (what they actually spent for an item) because their payments go primarily towards paying off the interest on that principal (the additional money a company requires a consumer to pay if he or she has not paid for the item in full by the end of the payment period).
Kendra opened a credit card with a low interest rate of 8%. When, after 30 days she had not submitted her minimum required payment, the credit card company raised the interest rate on her balance to 20%.
Sample – Credit Card User Agreement:
If I fail to pay the minimum due by the “Payment Due Date” my payment will be considered late and I may be considered in default. If my payment is considered 60 days late at any time, I understand the Annual Percentage Rate (APR) used in calculating the FINANCE CHARGE, will be changed to that stated in the enclosed Disclosure Table. The adjusted rate will be effective as of the date stated in the notice which you will send me no later than 45-days prior to implementing the change and will remain in effect indefinitely or until I make six (6) consecutive timely payments. If at any time you consider my account in default, I understand you may demand full payment and return of my Card(s). I also agree to pay outstanding Fees, collection costs, reasonable attorney fees, and court costs as applicable.