When is a grace period not really a grace period? When you have to pay a $6 fee for using it.
Some Bank of America mortgage customers will receive an unwelcome Valentine's Day gift when the bank's policy for grace period mortgage payments changes on Feb. 14. Essentially, it means those customers will have six fewer days to pay their mortgage each month without facing additional fees.
Consumers who use the bank's online payment tool, Mortgage Pay, will risk a $6 fee if they fund payments using another bank's checking account and the payment falls during the final six days of the traditional 15-day grace period. Consumers who make payments from Bank of America accounts are not subject to the fee.
"Let me get this straight. They tell you that you have a grace period, (then) they say, 'Oops, you only have half of it if you don't bank with us,'" said Gail Hillebrand, a lawyer for Consumers Union who specializes in banking issues. "That doesn't seem fair. ... This looks like a new 'gotcha,' and we have enough of those already."
Notice of the subtle adjustment, titled "Upcoming Change to Fees," was sent to customers recently.
"If your payment is due on the first of the month and you have a 15-day grace period, you can schedule your payment to be drafted prior to and including the ninth of that same month to avoid a service fee," it reads. "If you schedule your payment to be drafted on or between the 10th and 16th of the month, you will be charged a $6 service fee that will be included in your total deducted amount."
"They intend to penalize non-checking customers if they possibly can," complained homeowner Karen Conavatti, who has been paying her mortgage using another bank's checking account.
Bank of America (which responded after initial publication of this story) said the firm has in the past assessed grace period late charges ranging from $3-$6, and the notices went to consumers to clarify a new policy that raises fees on some customers but eliminates them on others.
The move comes as banks continue to crank up new fee opportunities in reaction to regulatory changes that have cost them billions in overdraft fee revenue. In early January, for example, Bank of America announced a new four-tiered fee structure for checking accounts with fees ranging from $6 to $25 per month.
A copy of the notice sent to consumers.
Conavatti complained that the mortgage grace period change is unfair because there are no local Bank of America branches near her home in Minnesota.
Some consumers who are being hit with the change didn't apply for a mortgage with Bank of America. Instead, the bank inherited their mortgage later by acquiring it as part of an investment portfolio purchase.
That's what happened to Siddharth Dalal, who recently refinanced with EverHome Mortgage Co., which in turn sold his mortgage to Bank of America. His beef involves service, rather than fees, however.
"My bigger complaint is that you cannot schedule recurring payments (at Bank of America's Web site) unless you have a Bank of America checking account," Dalal said.
Hillebrand, the Consumers Union lawyer, said the changes are steering customers toward opening Bank of America accounts at a time when the bank is adding fees to those accounts, creating a damned-if-you-do, damned-if-you-don't situation for consumers.
"If you are offering good service, you should not have to force consumers to come to you. That's not a good sign," she said.
Most mortgages include a grace period of 10 to 15 days – meaning payments made during those times do not incur late fees. Many consumers pay at the end of the grace period in an attempt to hold onto their money as long as possible. Hillebrand doesn't recommend that, as it can put the account holder at risk for late payments and fees. In rare cases, when homeowners hold simple interest mortgages, paying during the grace period incurs additional interest charges.
There is a sure-fire way to avoid the grace period fee: Pay your mortgage a day or two before the grace period even starts, which Hillebrand recommends.
Still, the bank is creating two tiers of service, and giving advantages to mortgage consumers who switch their bank accounts to Bank of America. If the idea catches on, that could lead to a maddening situation for homeowners who are already frustrated by the number of times their home loans are bought and sold by banks.
"You don't want to have to go around changing your checking account every time someone buys your mortgage," Hillebrand said. "This is just one more way to extract money out of you that you don't expect to have to pay."