Credit Cards

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Tuesday, January 24, 2006

Are Credit Card Companies and Banks Resisting The New Minimum Payment Rules?

Question: Are banks and credit card companies resisting the new monthly minimum payment rules? According to the following press release*, maybe:

"Contrary to reports in many media outlets, an survey of the seven largest credit card issuers found that none is doubling credit card minimum payments. In fact, most are adhering strictly to new federal guidelines or believe that their current minimum payment formulas are adequate to satisfy the government’s desire to see credit card balances paid in a reasonable amount of time.

Guidance from the government’s Office of the Comptroller of the Currency suggested that card issuers should require their customers to pay monthly at least one percent of their principal credit card balances, plus all finance charges and any fees. The goal was to get balances paid down -- under the previous industry standard two percent minimum payment, customers with high balances could conceivably 'meet the minimum' without even paying off a full month's interest, much less taking a chunk out of the principal balance.

While the government’s guidance led to fears that credit card minimums might double, information from the seven largest card issuers (who own an estimated 60% to 70% share of the credit card market) suggests otherwise:

• Four of the largest issuers are strictly adhering to the new guidelines of one percent of the principal balance, plus interest and fees.

• Two issuers are making no changes, due to long-standing minimum payment policies that the companies feel already address the government’s concerns.

• One issuer has thus far made no change to their minimum payment policy of 2% of the credit card balance.

'In mid-December we reported that claims of minimum payments doubling were not accurate; now we have the proof,' said Justin McHenry, Research Director for 'Most credit card issuers are adhering to exactly what the government suggested or are sticking with minimum payments already above those guidelines. While some customers will see increased credit card minimums, the impact will be slight--certainly not a doubling.'

By way of example, a person with a $10,000 credit card debt and a 19% annual interest rate would have a required monthly payment of approximately $203.16 using the old 2% minimum payment standard. Under new requirements that most issuers are using, the monthly payment would be $258.33 ($158.33 in interest, plus $100 of the outstanding balance). This is a difference of roughly $55 - on a balance and interest rate that exceeds what the average consumer is carrying."


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