U.S. PIRG Consumer Blog: Credit card firms raising minimum monthly payments

Three years ago the bank regulators finally became shocked, shocked! at skyrocketing credit card debt (now $800 billion and rising) and ordered banks to raise minimum payments, within three years. Consumer debt had increased -- seemingly exponentially -- due to banks luring consumers onto a perpetual debt treadmill with lower and lower minimum monthly payments -- most at around 2% (or a little more) of the principal owed. With credit card interest rates for many consumers at 24-30% APR, or 2% to 2.5% per month, making that 2% minimum payment literally meant either never gaining ground or actually losing ground. Losing ground? When your interest is 2.5% each month and your payment is 2%, the amount you owe goes up, not down. It's called negative amortization and is entirely inappropriate for most credit card customers.

If you owe the credit card company $5000 at 16% APR and make 2% minimum payments, it would take you 26 years to pay off the card if you never used it again. More here.

In a recent speech to consumer advocates, the nation's chief credit card regulator, John Dugan, Comptroller of the Currency, said that he expected banks to work with consumers who can't make the new increased minimum payments:

...let me make one point perfectly clear. We recognize that the change in required minimum payments will make it more difficult for some existing credit card borrowers to pay the full amount of the increased minimum payments due. We have encouraged lenders to work with these borrowers to the maximum extent possible to avoid writing down the loan and cutting off the customer’s credit. Lenders have a variety of tools to do this, including restructuring or deferring payments and, in appropriate circumstances, re-aging accounts. In addition, lenders always have the option of reducing high interest rates charged to delinquent borrowers – sometimes exceeding 30 percent of the outstanding loan balance – and/or waiving fees in order to reduce a minimum payment while still amortizing a modest amount of the outstanding principal.

I remain unconvinced that any banks will lower interest rates to comply. I will be shocked, shocked! Please let me know if yours does. And if you have trouble making the increased payment, and your bank refuses to help you avoid financial disaster, please let me know. More information about credit card tricks is availabel here at our page truthaboutcredit.org. It has links to our most recent testimony, plus links to our report: Deflate Your Rate. That report tells you two ways to reduce credit card debt. (1) call the company and ask for a lower rate. It works, 50% of the time. (2) Pay much more than the minimum due. Here's a report webpage comparing how much you'll owe, and for how long, if you make a 10% of the balance payment instead of a 2% payment.

By the way, I was shocked, shocked, yet again, to find a clear explanation of what is going on with minimum payment increases, including examples, at the MBNA credit card company website. Usually the credit card companies make things as murky as possible.

Watch for future blogs about the implementation of new credit card disclosures about minimum payments, which will be appearing soon on your monthly statements as required by the recently enacted bankruptcy law. They're industry-approved, rather than what we wanted. We had hoped that the new law would require two new boxes to appear on your statement-- one to say how many years it would take to pay off your card if you stopped using it while still making required minimum payments and one to say how much interest would accumulate over that time. We got a more generic, less useful, disclosure, of course. More to follow.

The new regulator guidance requires minimum payments to result in a payoff of the principal within 5 years. In practice, this means a payment of about 4% (instead of 2%) of the principal, plus finance charges and any penalty fees. Note that the guidance does not specifically require a 4% of principal payment, it requires that payments result in a reduction of current principal to zero over 5 years (presuming the card is not used any more). Effectively, that means payments must cover accumulated interest and penalty fees and also reduce principal by 1% per month. As a rule of thumb, a payment of 4% of the amount due (plus fees) meets the 1% reduction in actual principal to zero over 5 years goal.

I am being SUED by Household Credit (a credit card company) for being 3 months late on a payment! SUED! had to pay $150 just to "answer" the suit and now have a court date!
I have had credit card companies CALL MY NEIGHBORS to get me to pay up.
These people are EVIL and feel that because you owe them money they have a right to do anything they want to collect it.
THEY MUST BE STOPPED!

Chase raised my rate on three cards to over 30 percent, even after I sent them letters refusing the change in terms, and closing my accounts. They closed my accounts, so I know they received the letters, but they raised my rate anyway! I called them but no action yet...we'll see.

This sucks for some of us. I am planning to use a $20,000 credit card to do home improvements, including a roof. The rate on my card is 3.99%, for the life of the debt. It sounds like the initial monthly payment is going to go from 450 to 850 per month! This means I have to use a secured line of credit at a much higher rate.

I share the concern about people with troubled finances. I just wish the rule could be written to more specifically help them. Not all credit cards are preditory, and it makes sense for some loans to be paid off over periods longer than 5 years.

All this credit card shenanigans will undoubtedley lead to problems on the credit report. I can suggest this site to help to fix credit problems...

www.brokencredit.com

I to am a victim of the new government credit card payment law, and Chase Banks refusal to return my account to the original terms. I have allways had excellent credit pay on time and more then the minimum payment as offten as possible. I have also been their customer for over 15 years yet they still refuse to work with me except to close my account. They are using the new law as an excuse to change rates in addition to payment amounts so even if they did agree to accept the old payment amount my finance charge is more then the payment. How is this supposed to help anyone get out of debt. I don't know about any of you but I think a CLASS ACTION SUIT IS EMINENT!

All my credit card companies have changed their min. payment amounts and their interest rates which use to be from 9% at Bank of America to 10% at USAA.
All the credit cards I have except for my USAA card have raised their interest rates to an average of between 30% to 35%. This in turn makes my min. payment 3 to 4 times higher than before changes took effect,on previous balance and current charges after the laws changed. What my budget was allowed me to pay my debt, now I am in serious financial trouble. Something needs to be done, the credit card companies are making so much more money that they are now able to buy other banks and raise the rates of the cardholders from the banks they buy. That is one of the ways they were able to raise the rates of some of my cards. Congress should have known that by giving the banks an inch, they would take a mile..They are in a powerful position now that our debt is in their hands, I thought these high interest rates were against the law for credit worthy Americans who pay their debts..

I have good credit and I have never made a late payment on any loan. However, Chase just increased my APR from 7.99% to 28.99%. When I called, they told me that they sent me a letter in December to notify me that they ran my credit report again and saw that my balances were too high, so they decided to increase my APR. First off, I never received this letter, not to mention that this just seems like unethical business practices. I have had several previous negative experiences with Chase, but this is by far the worst. After spending tons of time on the phone getting no where with the CS reps, I just told them to cancel my account. I am going to pay off my balance with my tax returns and will never do business with Chase again!!!

I was a customer of Capital One for 5 years, and had transfered all my balances to that account, when they refused to honor a cash advance check, making a mess of my checking account. The reason was because I had one late payment. Two years later, I borrowed money to pay off my account, after they raised my interest rate to 28%. After paying off the balance in full, I received another statement from them for MORE INTEREST CHARGES. I was told my account was accruing charges "daily" because I had not made a "full" payment in the last year. They get you every way they can! Please tell everyone you know not to do business with Capital One!

When I first went with Chase I regretted it. Now even more so. I too have recently received my statement with a huge increase on my interest rate. They told me the same that it was due to something on my credit report. They said it was noted on my February statement that this was going to happen. I did receive a letter from them in February saying they were going to decrease my credit limit and if I had a problem to contact them. Well to be honest I didn't have a problem with that at all. It was too high to begin with and glad to see it go down. But there was no mention of my increase in interest rate.

Good to take up this issue on credit card. Can we force banks to create parallel "on-line" credit movement so as to make it more customer friendly?
visit http://futureofinternetbanking.blogspot.com
for more details and give your comments.
Shri_2006

For Chase complaints try the Office of Comptroller of the Currency. They may be able to help.

This is the second time this has happened. First with Discover Card, I paid off a credit card debt I had always paid on time. I called to close the account. They told me it was 'closed' on multiple occasions, but later I found a 'fee' had been posted against the 'closed' account. I had to pay the fee and fight to get this off my credit (which was otherwise spotless). Now the same thing just happend on a Chase Credit card. EXACTLY the same thing. I paid off the account and asked to close my account. They told me it was closed to shred my cards, but that it would remain visible online and could be continued to be billed against. So I still have a line of credit, which I don't want. In my mind the account is just not closed. What prevents them from tacking these fraudulent 'fees' the same as Discover Card? I WILL NEVER HAVE ANOTHER CREDIT CARD THE REST OF MY LIFE!!!!! Can't they see they are losing business with these scam like dealings with customers? And this goes for good 'pay on time' customers with great credit, not just customers with money problems. They seem like they are there to scam us. WHEN WILL THE GOVERNMENT TAKE NOTICE OF FRAUD IN BIG CREDIT CARD BUSINESS????

Can anyone tell me if credit card companies can charge you a late fee, if you have always paid them more then their minimum due amount. I was late on one payment on my citicard and now they raised my interest rate to 31.99%, which equates to $306/month for interest alone-for my balance.

If you send an e-mail please put credit card fees in the subject line-so I don't miss it, thanks

Yes, I myself have fallen victim to this credit card regulation. CHASE being to worst of the bunch raises my credit limit then hits me with a 29.99 % apr for no reason. Telling me 1% of this added to daily of that doubles my minimum. I call every month to try to change this but to no avail. It seems we have no choice or they close your account then you are still responcibe for the debt and you dont even know they closed it. CHASE is losing me as a customer for everything I have with them

First of all, let me say that I know enough about business to understand that this is business and not "personal". It is in some ways unfortunate as well as fortunate that it is not personal.
I have recently decided that I no longer feel the need to use my credit cards as much as I have in the past. There are so many services to assist people at any point in this process and I have looked in to several, including the obvious. it really boiled down to just wanting to pay them off. I have a relatively large amount accrued and therefore need to change my lifestyle which I have accepted graciously.
The main reason for my posting is that if I 'default' on my credit card, or if I am late on a payment it is basically announced to anyone who might consider doing business with me. Therefore, I decided to announce my experience with Chase for anyone who might consider doing business with them.
Let me say that all of the customer service staff with whom I spoke, were pleasant, courteous, professional, and unfortunately (to them also) not helpful. There really is so much 'small print' that we don't read, and take for granted that is set up to cover, not only a potentially negative experience with us, but negative experiences with other customers. I had 2 months this year that I was late (3 or 4 days) that keeps my interest rate at a whopping 29.99%. I understand the fear for a company, but not the logic in raising the interest rate which seems to push toward bankruptcy as opposed to a potential pay-off or at least a pay-down. There doesn't seem to be a balance in punishment for bad behavior and rewards for good behavior with Chase. I spoke with Citibank (they worked with me quickly and amazingly and had me off the call in less than four minutes). I also spoke with Capital One who was very very helpful as well.
A couple of years ago, I had a similar experience with Chase and paid them through a balance transfer from Bank One who was later bought by Chase!! Chase seems to stand out in my experience as a credit company to avoid. I do feel left with a "guilty until proven innocent" treatment.
I am a business person. I take responsibility for my choices and wish that I had a more informed choice about credit companies. i am also someone who has acquired quite a bit of debt for letting myself have (literally) whatever I wanted. I know that I am not unique in this way. i have no regrets in my life, truly. My life is awesome, I have had a great time, and I am ready to slow down for awhile and pay off my debt. I want to avoid bankruptcy as much as I want to avoid 29.99% interest rates.
If Chase saw ME they would give me what I asked for several times: a reasonable interest rate.
Chase seems to have only one interest.

I also have had no luck regarding lowering my interset rate with CHASE. I was told that it was my outstanding debit ratio that promted the 29.99%. When I spoke with 4 diferent people with no result, they simply told me to get credit advisor to work with them to reduce my rate to 6% ? This made no sense to me at all. I asked them to retun my account to 23% and I would continue to pay them as I have in the past 10 years. They simply said they could do nothing for me. At this point I have no options left but to get finnacial advisor to intervine,but there are so many scams out there I don't know who to trust.

I hate chase credit card

Just don't pay to them(credit card company). If your debt is less than 10,000.00, they can't do anything to harm you. Two reasons why? First, in order to hire a lawyer to lawsuit against you, it will cost them 10,000.00. They will only lawsuit those with huge debt. Second, those bad mark on your credit report will remove after 7 years, but you need to tell them to remove. This is the rule. By the way, credit card company can't call you to collect debt, but you have to tell them "don't call". If they are keep calling after you inform them, you are lucky, because you will have chance to lawsuit against them back.

Chase are nothing but Scamsters on a Huge scale. I got a credit card with them a few months a go with a introductory offer of 0% for 6 mths. After 3 months they decrease my credit limit without even letting me know then send me a letter says my interest rate had gone up to 21%, WTF??, I call these fools up and all they could say is that, they were relying on info from the credit agencies, what freaking info I said, I only had 1 other credit card with a balance of $100. These guys are nothing buy Huge Scamsters that are just Legit, and no better than loan sharks and other crooks. and can get away with it because the useless government wont protect the consumers of the country.

The inability of the consumer to repay isn't an excuse for not paying. But what happens to the consumer when the terms and conditions of credit change and make it impossible for the consumer to make a minimum monthly payment? If the consumer has perfect credit and pays on time (all conditions and the ability to repay are met), but the credit company changes the minimum monthly payment, then the interest rate increases to 31.99 and late fees accrue? What remedy is there?

What would happen if your closed-end credit monthly payment doubled?

Keep up the great work on your blog. Best wishes WaltDe

Yes, CC companies will sue you! Your agreement almost certainly allows them to charge court costs and "reasonable" attorney fees to you.
So you pay all the costs, principal and the interest. Whatever you do, don't ignore a summons!

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