In what BusinessWeek calls "financial Night of the Living Dead" credit card companies are refusing to stop reporting legally discharged debt to credit reporting agencies—illegally forcing consumers to pay debts that they no longer owe in order to get approved for mortgages.

BusinessWeek introduces us to Van Rathavongsa, a factory worker from North Carolina who declared bankruptcy in 2002. One of the debts that was discharged by the judge was $9, 523 to Capital One, the huge (and notoriously shady) credit card company.

From BusinessWeek:
But Capital One continued to report the factory worker's discharged debt to credit bureaus as a live balance, according to documents filed in U.S. Bankruptcy Court in Raleigh.

This kind of failure by creditors to update credit reports happens with some frequency, consumer lawyers and court-employed bankruptcy trustees say. And it can have consequences: In September, 2003, when Rathavongsa tried to close on a $274,650 mortgage for a new house, his would-be lender, Wachovia (WB), said he would either have to pay Capital One or show proof from the credit-card company that the debt had been discharged. Despite several calls and a letter from his attorney, he says, Capital One never revised the credit report. To obtain the home loan, Rathavongsa eventually did what many consumers in this situation do. He gave in and paid Capital One $9,523 he no longer legally owed. In addition to shady behavior from credit card companies, BW says there are now publicly traded companies that specialize in buying discharged debt. Bankruptcy law prohibits the collection of discharged debt, so why are companies buying it ? Owners of canceled liabilities can revive their value in two main ways: by directly pressuring consumers to cough up cash or by gaming the credit system, as allegedly happened in the Rathavongsa case. With all this shady debt trading going around, its important to know your rights as a consumer. Mr. Rathavongsa got a lawyer, sued Capital One and won. He received his money back and $14,000 for expenses and attorney fees.

I have had a Capital One Mastercard for about 10 years. My interest rate has been 4.99% for as long as I can remember. I received my statement for October to find that my interest rate had jumped from 4.99% to 13.5%.

I called Capital One to find out why. After a completely confusing phone tree and 10 minute wait, I got through to a real person who explained that the increase was not because of anything I did, but because Capital One made an "executive decision" to increase rates "for all cardholders" because of "recent market conditions."

They then offered to transfer me to another person who has the authority to review my account and see if I can get the rate lowered. This second person re-explained the reason for the rate increase and offered to lower my rate from 13.5% to 12.9%. I argued that I would transfer my balance away to another card or pay it off entirely, but this made no difference. I grudgingly accepted the 12.9%.

My wife and I are carrying more of a balance than usual as we just had some work done on the house that we are floating on the card for a few months. The interest rate increase makes our monthly interest (the amount we have to pay to keep the balance flat) go from $59.20 to $147.11. The difference, $87.91, is more that I pay each month for cell phones, satellite TV or even electricity on most months.

We are fortunate in that we have savings and other cards with lower rates which will allow us to transfer our balance away from Capital One. I'm sure many others will not have that luxury. Why is this not big news? Or is Capital One just screwing me because I had such a low rate to start with and that makes me a bad (low profit) customer? For the record, my credit is excellent and I have NEVER had slow-pays or missed payments.

I'm wondering if any other Consumerist readers have had this experience with Capital One.

-Chuck"ConsumerMan" Herb Weisbaum over at MSNBC says that banks have messing around with their late fee structure lately—adding a third tier of pricing, raising fees, etc. Those of you with higher balances might be paying more if you're late. We think that's not cool, so we're posting a round-up of current fees.

Discover: For billing periods after Oct. 1, the late fee will be $19 on balances up to $250 and $39 on balances over $250.

Chase: Added a third tier. It now charges $15 on balances up to $99.99, $29 on balances between $100 and $249.99, and $39 on balances over $250.

Bank of America: $15 on balances up to $100; $29 on balances over $100 up to $250; $39 on balances over $250

Amex: $19 on balances up to $400 and $38 on balances of $400 and over

Capital One: $19 on balances up to $100; $29 on balances of $100 up to $1,000; $39 on balances of $1,000 and over

Citibank: $15 on balances up to $100; $29 on balances of $100 up to $250; $39 on balances of $250 and over

Pay your bills on time. Late fees make the Consumerist cry.

Blueprint for Financial Prosperity reminds us that savvy consumers can take advantage of credit card companies hellbent on turning a profit. Most credit card companies will go to great lengths to keep their customers happily spending away. Use these tips to make them cater to your every financial desire:

Ask: Most companies will waive or reduce fees upon request.

Consolidate Credit Lines: If you have several cards with one provider, boost your credit score by asking to consolidate your charges and credit limits onto one or two cards.

Boost Your Credit Limit: Creditors will usually increase the credit limit of loyal customers with good credit without harming their credit score by requesting a credit report. Wait at least a year before making the request.

Escape Foreign Transaction Fees: If you are planning a hop across the pond, ditch your Visa and Mastercard in favor of Discover or Capitol One. Neither levies a foreign transaction fee of 1% or more.

Switch Rewards Programs: Stuck with frequent flier miles when you want cash back? Most creditors will allow