‘Disguised’ Interest on Credit Cards Is Decried : Lending: A nonprofit group says charges for cash advances, for going over a credit limit or for late payments can mean effective interest rates above 30%.

Just when it seemed that interest rates on credit cards might be falling out of the stratosphere, a nonprofit association of cardholders is releasing a report saying that a “complex maze of secret billing tactics and fees” is hiking effective rates above 30% in many instances.

The study to be released today by Bankcard Holders of America cites tactics that it says disguise the true rates being charged many American cardholders, 72% of whom have outstanding balances.

Among the tactics are one-time fees levied on those who get cash advances, go over their credit limit or pay late. Any of the fees can boost the actual cost of credit well past the advertised interest rate.

In addition, the way banks calculate interest on revolving balances can drastically affect the amount of interest consumers pay.

In a complaint sent to Bankcard Holders of America, one woman maintained that her bank’s use of the “two-cycle” method boosted one month’s interest obligation from $25 to $80.09. This method allows the bank to calculate the finance charge by adding two months’ balances together--essentially charging twice for the same purchase.

Bankcard Holders says the two-cycle system, which is legal, can cost consumers almost three times as much as the least costly method, which is based on one month’s average daily balance, excluding new charges.

To illustrate, the consumer organization showed what would happen to two hypothetical consumers holding cards with identical interest rates who charged for exactly the same purchases. The one whose bank used the two-cycle method would pay $196.20 in annual interest charges, while the other would pay $66.

Worse still, the organization says, the bulk of the charges usually are disclosed only in cardholder agreements given to consumers after they have received the credit card.

Bankcard Holders of America called the nation’s 25 top credit card issuers and asked for applications and cardholder agreements on standard cards. Only seven agreed to send a cardholder contract. The other 18 refused, unless a card was issued, the organization said.

“We feel the spirit of the truth in lending act is being violated,” said Elgie Holstein, president of Bankcard Holders of America. “Even if you are sophisticated enough to decipher these cardholder agreements, there is enormous difficulty in getting the issuers to provide them in the first place.”

Bankers acknowledge that nuisance fees are common and that different calculation methods can change a customer’s effective rate of interest. However, they say the fees are adequately disclosed.

“Banks have been making every effort to educate consumers about the fact that there is more to a credit card than its interest rate,” said Virginia Stafford, a spokeswoman for the American Bankers Assn. “These fees are all disclosed, and they should be used as a basis for comparing products.”

She added: “The question is whether consumers read what they get.”

Results of the Bankcard Holders’ survey, which examined companies representing about 50% of the credit card market, spurred the group to revise its “Low Rate/No-Fee Credit Card List” to reflect the hidden fees.

The list, which gives names, rates, fees and toll-free numbers for about 50 credit card companies, can be ordered through Bankcard Holders of America, 560 Herndon Parkway, Suite 120, Herndon, Va. 22070. There is a $4 fee for non-members.

The most costly practices highlighted by the survey are the nuisance fees being charged by the majority of credit card issuers. Bankcard Holders of America estimates that consumers paid $1.1 billion in the fees during 1991.

Possibly the worst of the fees are over-limit assessments, which are “often outrageously expensive for a small transgression,” the study says. For example, a consumer who charges $50 over his or her limit may be hit with a $15 over-limit fee. That’s on top of interest charges, which are often levied not only on the balance, but on the over-limit fee as well.

Even though 16 states--not including California--prohibit over-limit fees, consumers in those states may be charged the fees by out-of-state credit card issuers, the study said.

Late fees, which are charged when the consumer fails to make the minimum payment by the due date, usually range between $10 and $15.

Meanwhile, those who use their cards for cash advances find that many banks charge a second, higher rate for advances than for credit card purchases. Grace periods, which give consumers a few days before interest charges are levied, are also generally waived on cash advance transactions. In addition, many banks charge separate cash advance fees ranging from $2 to $20.

The end result: Someone who takes out the average cash advance of $300 on a card bearing an 18.5% rate, and who pays the average cash advance fee of $2.50, ends up paying an effective annual rate of 32.94% if he paid off the cash advance within 25 days, the survey said.

Meanwhile, banks have gradually reduced minimum monthly payment amounts due from consumers. While this may seem helpful to over-indebted customers, it greatly increases the interest they pay over time.

The Bankcard Holders survey cites one bank that reduced its stated interest rates to 15.9% from 18.6%, while reducing minimum monthly payments from 5% of the account balance to 3% of the balance. Cardholders who remit only the minimum amount due on a $2,000 revolving balance would end up paying $1,295 in interest under the new plan versus $822 under the old one--despite the lower rate. That’s because it would take three years longer to pay off the balance.

Bankcard Holders advises consumers who carry revolving balances to:

* Shop for low-rate cards and make credit card payments the moment they get the bill. Paying immediately reduces the average daily balance used to calculate finance charges.

* Pay more than the minimum amount due.

* Avoid going over their credit limit.

* Avoid paying late.

* Scrutinize credit card agreements before taking out cash advances.