What would happen if penalty charges on mortgages and credit card payments were:
- prorated – with any partial payment received by the due date the penalty would be reduced by a prorated percentage
- reasonable – as in never greater than the scheduled payment – ideally capped at less than half the scheduled payment
With a fixed (non-prorated) penalty there is a definite disincentive to make any payment that month given a situation where choices must be made about which bills to pay first among several bills to pay. Especially with a large penalty, such as on a mortgage payment – why make a partial payment and still be hit with a full penalty during a month that a cash flow shortage is causing multiple other bills to also be hit with a penalty if they’re not paid first that month?
With a non-reasonable penalty, such as $39. on a $20 payment, there’s a strong disincentive to do business with that merchant – the credit card itself becomes a reminder of being hit with outrageous fees reminiscent of parking tickets. The former causes some people to have negative associations come up with anything associated with that merchant’s brand, the latter causes some people to avoid an entire street or neighborhood when choosing where to shop.