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 IndexCreditCards.com 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 IndexCreditCards.com. '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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New Minimum Payment Rules Starting To Kick In

Thanks to The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005*, the monthly minimum payment due on credit card balances has been raised from 2% of your credit card balance to 4%. This change affects every single credit card holder in the United States, especially those who often find themselves paying the minimum amount due each month.

The new rule is a good one and has the laudable goal of helping consumers pay off their credit card debt quicker. But doubling everyone's minimum amount due will almost certainly cause serious problems for folks who are struggling financially, and may even force people who otherwise would have been able to manage with the old 2% minimum standard into bankruptcy.

The new minimum payment rules are starting to kick-in with the credit cards I have. Monthly minimum payments that used to be $40 are now $80. This is OK with me, for I have been in the habit of paying 3 times the minimum amount due each month on my credit cards anyway. But I can't help but feel a little strained, because I always felt safe in the knowledge that I could always afford the minimum amount due if I ever experienced a financial meltdown. Now, I think that if I suddenly and unexpectedly ran into hard times, I might not be able to handle my monthly credit card payments. I wouldn't be forced into bankruptcy, but I would be forced to open more lines of credit in order to cope, and that's not a good thing.

A few days ago, I decided to take advantage of a Citibank balance transfer offer: 3.99% APR for the life of the transferred balance until the transferred balance is paid in full. A decent deal, which will certainly save me a lot in interest charges, and so far I haven't had any problems with any of the Citibank credit card accounts I have, so I think it was the right move. Of course, I now have to stop shopping with my favorite Citibank card, because all payments I send in for this card will now go toward paying down the transferred balance, leaving all new purchases subject to interest charges @ the standard rate (which for this card is 9.49%.) And if I slip-up and make a purchase on this card, the only way to stop the interest from piling up @ the standard rate is by paying off my entire credit card balance, and I don't have that kind of money right now. So the balance transfer game continues.

My latest credit card balance transfer transaction has enabled me to completely payoff (well, not exactly "pay off," but you know what I mean) my Providian and my Chase credit card accounts. I am, therefore, expecting both credit card companies to respond my empty accounts by offering me some great balance transfer deals in the near future. Will I take advantage of them? Probably! The last time I paid off my Providian account, they offered me an irresistible deal: 1.99% APR on transferred balances until the transferred balance is paid in full. That's a killer deal, and I'm hoping that they offer it again.

So stay tuned to the balance transfer blog. I'll post again when I have more news of my adventures with credit card balance transfers.

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