Federal Reserve Reluctant to Limit Minimum Payment Increases
January 15th, 2009 by Kenneth Long
With cardholders worried about increases in interest rates, some have found that higher minimum payments have been a greater problem. Many are questioning the changes and venting their frustrations. However, don’t expect the Fed to want to lower minimum payments.
The Federal Reserve enacted regulations in December 2008 that will limit the types of rate increases that credit card issuers can enact. This may bode well for consumers that carry hefty credit card balances, but they will have to wait until July 2010 to see any relief. By then, their interest rates will probably have been increased already.
Remember that card issuers could still lower their rate for any reason, but it will be harder to raise their rates for any reason after the July 2010 deadline. Also, while the Fed may be limiting rate increases, they have not made any rulings to cap minimum payment increases.
Consumers were initially hit with higher minimum payments in 2006 when the Fed pressured credit card issuers to raise minimum payment requirements. The Fed claimed that card issuers were not requiring a high enough minimum payment. In some cases, minimum payments as low as 1% of the balance were possible. Some cards even were characterized as negatively amortizing.
5% Minimum Payment Requirements
In November 2008, Capital One began raising its minimum payment requirements beyond what was requested by the Fed 2 years prior. One car issuer went even further. In December 2008, Chase raised minimum payments to 5% of the balance on may of its “fixed rate for the life of the balance” accounts. They also added a $10 monthly fee to these cardholders that applied as long as they carried these balances.
Some cardholders cannot afford the increase in minimum payments and are forced to make difficult choices if they do not get help through credit counseling. Other cardholders can afford the increase, but they are upset at what they perceive is an unwarranted change in terms.
Sure this is an important issue that is adversely affecting tens of thousands of cardholders. However, the Fed will probably drag their feet on this issue. Here is why:
Fed Action Unlikely
The Federal Reserve and other government regulatory authorities have for years criticized card issuers for allowing minimum payments that they deemed to be inadequate. The government mandates that cardholders be required to make a minimum payment so that they could be expected to pay off the balance in a reasonable period of time.
The government would love for all card issuers to require a 5% minimum payment. They see this as a long-term solution that would ultimately help cardholders avoid overpaying on short-term credit purchases.
There will be some short-term pains with the higher minimum payment requirements. There will be increased defaults just as there were back in 2006 when the previous increases in minimum payments were mandated. However, the Fed views the ultimate increase in minimum payment requirements as healthy for the American people.
I are not suggesting that the increases in minimum payments are warranted, nor am I suggesting that increases should not be made. What I am suggesting is that higher minimum payment requirements of 5% should be phased in on new purchases. This would help transform consumer credit into a safer form of financing that can reduce overreliance on credit cards.
Therefore, understand that the Federal Reserve will not be eager to force lower minimum payment requirements on credit card issuers. This would defeat what the Fed has been fighting for all along.
This entry was posted on Thursday, January 15th, 2009 at 12:01 pm and is filed under Consumer Protection, Credit Cards, Credit Cards: Capital One, Credit Cards: Chase. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 20th, 2009 at 8:17 pm
With all due respect, that Chase has chosen to:
1. Introduce a five percent new minimum monthly payment–a 250 percent increase of the previous two percent;
2. Introduce this 250 percent new minimum monthly payment all at once, with no transition period and no incremental process;
3. Introduce this huge new minimum monthly payment requirement at the height of the greatest economic downturn in 50 years, at the very moment when many of their card holders simply cannot afford such an increase;
4. Add a new $10.00/month fee that is booked as a new purchase, that incurs interest charges at so-called market rates and cannot be paid off until any previously existing lower interest rate balance transfer is paid off; and
5. And to be totally underhanded in introducing these changes with A) no opt-out option; B) no letter on the changes in terms to cardholders who get their monthly statements electronically C) to record all cardmembers who call in to complain, and then to use to recordings as alleged legal evidence of agreement to these changes when some cardmembers did not think they were agreeing to such changes……..
all adds up to the fact that Chase is practicing predatory lending practices of the worst type–Chase has now begun applying the practices it had previously reserved for cardholders who had missed or were late with a payment, to ALL CARDHOLDERS WHO HAD FULLY LIVED UP TO THEIR AGREEMENTS AND HAD NEVER MISSED A PAYMENT.
There is no way that the FED forced Chase into practices of this type. Chase is simply looking to extort cardholders, who have no other option, to agree to assume new much higher interest rates as a means to keep minimum payment levels that the cardholder can afford without going into default.
This business practice by Chase is, in my view, only thinly veiled loan sharking. It is very clear that the credit card industry in general and Chase in particular need to be heavily regulated.
January 23rd, 2009 at 11:11 pm
MSRW nails it on this one — this is EXACTLY what Chase is doing, and it is just flat-out evil. No other way to say it.
My $.02 on this same issue, posted as a comment elsewhere on this site:
http://tinyurl.com/akcc9p
January 24th, 2009 at 3:09 am
Dear Mr. Long,
I have been correcting every appearance that I can of the phrase, Chase “added a $10 monthly fee.” It is a crucial point to note that the change in terms notice specifically said, “finance charge.” The fact that a “3.99% fixed rate” for the life of the balance is NOT the same as “3.99% plus $10 per month [in additional "finance charges]” is the sole reason that I can state without any hesitancy whatsoever on my protest site, ChangeInTerms.com, that Chase lied to me. I made this same point to Gordon Smith, CEO of Chase Card Services (in a certified letter to him, posted on my site’s “About” page).
Further, its executives lied before Congress in their previous testimony stating that they treating customers “fairly,” by providing an “opt out,” which it has not done with respect to the change in terms notice under discussion here, and on my own site.
Today, I have added a post today regarding a law firm that is investigating the possibility of a class action lawsuit in connection with this matter, and I have (even) noted that the firm should correct the service charge/fee language that it is using on its web form (collecting contact information from prospective parties who may be interested in this matter). I submit this respectfully, to you and to that firm.
February 12th, 2009 at 5:04 pm
Excellent points you all brought here! Chase never sent to me any anything about changes to the contract. I spoke to Chase on 21 January 2009 pointing to the illegal act and to date Chase did not deliver a copy of a letter they are claiming they sent.
In addition to the predatory lending practices and illegal conttract changes (as Dr. Lahm Jr noted, the $10 is clearly stated by Chase as the “Finance Charge”), I believe that the criminal act could be brought to the matter, at the threashold a Mail Fraud. In addition I am broadening a possible Class Action lawsuit charge to the element of criminal extersion.
For that reason and to record the evidence that I am not agreeing to the Chase’s arbitrary changes to the contract I am addin a following line when submitting a payment to Chase:
“Amount you coerced by threat – not my acceptance of Chase changes to contract”
This is how much space is available on chase.com for my payment submission.
Count on me and contact me if pursuing the Class Action lawsuit to protect similarly situated and injured customers, like me. I have a stellar, never late over 15 years credit history and as Dr. Lahm Jr. 2.99% for the life of the loan the contract just violated by the JP Morgan Chase bank. My email: cezaryg[at]gmail.com
February 12th, 2009 at 5:10 pm
Forgive me some typos:
“Threshold”
“Contract”
“Extortion”
etc.
I was typing in a car, sorry; but you got my point regardless of me being so slappy.
April 18th, 2009 at 1:08 pm
Kenneth Long, you have been fooled.
Your inclusion of Chase in this article shows that Jamie Dimon and his gang of criminals have tricked you into conflating two completely different issues.
Yes, the federal government may have a legitimate concern about minimum payments that are so small that they cause the amortization to be extremely slow or even negative.
But Jamie Dimon’s concern is EXACTLY THE OPPOSITE. Just do the math, and you’ll see.
My payment was 2% per month, and my rate was 2.99% per year. Do the math, and you’ll see that the equivalent amortization was around 53 months. That is MUCH FASTER amortization than most credit card accounts, because my monthly payment of 2% was already MUCH LARGER than my monthly finance charge.
Dimon and his gang are trying to force me to agree to a 7.99% interest rate, in order to continue with my 2% per month minimum payment. Obviously this higher rate will make the amortization SLOWER, not faster.
But it gets much worse. The new 7.99% interest rate is only temporarily fixed; after that it will be VARIABLE, so they’ll be able to jack it up as high as they want. I’m sure they’ll increase the rate to 19.99%, or even higher. Do the math, and you’ll see that the equivalent amortization will be around 108 months. That’s more than TWICE as long as the 53 month amortization that I already had!
As you can see, when you do the math, Jamie Dimon’s goal is EXACTLY THE OPPOSITE of the federal government’s goal that you described in your article. Dimon is trying to force us to accept SLOWER amortization. So you should have included Chase as a COUNTEREXAMPLE, a bank that is doing the OPPOSITE of what the federal government wants.
The fact that you included Chase as an example, when you should have included Chase as a counterexample, shows that you have been fooled (just like many people in the media) by the Dimon gang’s premeditated campaign of slander and libel.
Dimon’s repeated accusation that “these people were making little progress” is horse droppings, and he knows it. Every one of us was making RAPID progress. When your interest rate is 2.99% per year, and your payments are 2% x 12 = 24% per year, you are automatically making rapid progress, because your payments are about 8 times larger than your interest!
May 29th, 2009 at 3:03 pm
Dear “CorporateDeathPenalty”:
Your math examples are right on. The interest rate increases have been addressed by new legislation that was signed into law on May 22: The Credit Card Accountability, Responsibility and Disclosure (CARD) Act. This will severely limit the ability of credit card companies to raise interest rates on existing balances after February of 2010.
The minimum payment policies that credit card companies follow have always been a thorn in the side of the Federal Reserve and other regulators. By law, credit card companies are supposed to require enough of a minimum payment so that a debtor could expect to repay a debt in full in a reasonable period of time. That certainly was not the case, when there were in fact a couple of card issuers that exercised “negative amortization” on some balances as recently as 2007.
The new legislation does put some limits on minimum payment hikes. Keep in mind that the Federal Reserve may not be done with reigning in minimum payment policies. However, given the speed of previous regulatory changes, these current regulations will likely remain unchanged for another 1-2 decades.
June 23rd, 2009 at 4:57 pm
I have a Chase account with a 3.99% rate for the life of the balance. I just got a notice from Chase informing me they are raising the minimum payment from 2% to 5% and that basically I have no recourse. I have never missed a payment and have excellent credit. There is a famous novel which calls Chase the “Grab Manhattan Bank”. Boy was that right! Well Chase, there is recourse in the long run. First, to advertise your destructive deeds and bad mouth you as a bank whenever possible. Talk about bad customer relations, they have some now. Of course there is no one sane to talk to at Chase. It’s just a gigantic money machine. The second recourse is to push for more banking regulations, especially about sudden changes in terms such as raising minimum payment percentages 250% in a month (according to their notice it goes into effect on August 1, 2009). The third recourse is to never do business again with Chase one this balance is paid off. Does anyone have any other ideas? A class action law suit would be wonderful.
June 23rd, 2009 at 7:19 pm
I agree with all the comments that have been made regarding Chase’s abrupt increase of min pmts from 2% to 5% of account balance. This happened to me.
After a wasted call to an account service rep. who explained that I have no choice and cannot “opt out” of this change, I feel very frustrated and would like to see something done. The rep could not see anything wrong with my account. I have no late payments on any account and very good credit. Perhaps that is who they are targeting, thinking these people have the ability to pay off the promo fixed rate.
A class action may give me some satisfaction, although it is always the lawyers that come out these matters.
June 24th, 2009 at 12:22 pm
I also just got the letter that my rate is going from 2% to 5%. I called and got a service rep saying that they are giving me 30 days to prepare. It is funny that just a month ago they sent my bill with no payment due as a gesture in these “hard economic time” but then the next month are telling me my minimum payment will more than double. Morons!
June 24th, 2009 at 2:08 pm
I received the change in terms today, raising my min payment to 5% and was also told that by the cust rep that I had no other options other than to pay off my loan… I do agree with the above comment..I believe they are targeting those that can either afford or pay the outstanding balance to get these underwater 3.99 loans off their books…
June 25th, 2009 at 3:26 pm
I too got the notice and have no way to pay a 150% increase in monthly payment to Chase. I was wondering how many of you that recently got the notice of increased monthly payments took advantage of the skip a payment last month? Was this a trick to see who would skip a payment and would be targeted for the increase as they are seen as a higher risk? None of it makes sense. In this tight economy it was a blessing to see that skip a payment, but then to only get a notice the next month that you will now be required to increase payment 150%…OMG how many families and individuals will be destroyed by this. NOT GOOD. VERY SAD.
June 26th, 2009 at 9:11 am
I, too, am no different than many here. I have always paid on time, month after month, year after year, faithfully. If a big bank like Chase thinks it “ok” to screw honest, hard working Americans that pay their bills on time as agreed, then I say screw ‘em back.
I’m almost to the point of risking ruining my credit rating to make a point as Bank of America has done something similar. Instead of me and my family taking a hit for these greedy $%#@!* then I won’t pay them a damn thing. I’ll go belly up on all my credit (except car and home) and in 7 years I’ll have a clean record.
I’m like the guy on the movie “Falling Down”. I’ve had it with the dishonesty and greed!
Actually I’ll likely pay the higher payment, buty I don’t like it and wish someone could do something for Joe the Plumber.
June 27th, 2009 at 10:49 am
I have a 720 credit score and have NEVER missed a payment. I got the notice and it’s raising my minimum payment from $300 to $750. I have no choice but the stop paying or I’ve considered canceling the auto pay and just sending the $300 I send currently as a protest. Call your congressman, local news get the word out. There’s alot of talk in forums but not much news coverage.
June 27th, 2009 at 9:55 pm
Everyone is running a tight finincial ship these days. Our credit has been exceptional. But there are recoures. First, everyone and I mean everyone should file suit against CHASE for deceptive trade practices and violation of public trust. As we American propped up this bank with 25 BILLION. Doesn’t that give all America citizens interest in this company. Secondly the other option is this. Everyone’s credit has been affected due to their lowering your available credit and as your FICO score drops other creditors use this as a ploy to jack their interest rates up. With you credit score already affected. Do this, don’t make your payments for 3 months and then contact them to offer a payoff at 20 cents on the dollar because you are potentially going to be ruined and have may have to seek protection under Bankruptcy law. Yes this is a ploy,,,But it is the same crap they are playing on us the public. The last option which their actions will cause is actually forcing many into bankruptcy. Screw them… If you are on automatic payments. Change to a new account, Fight back, do a class action,,but that recourse only lines the pockets of big attorney firms. Individually we can all fight back, simply by standing together. I have always paid my bills,,,but I am not going to be held hostages by these bastards or the Fed reserves mentiality of letting it happen. Stand Up!
June 29th, 2009 at 4:36 pm
Like other posters I received the chnage in minimum payment from 2% to 5%. According to the notice, threr is no opt out provision as there would be with an interest rate increase (i.e., close the account). I have a combined rate of less than 5% of which my principal portion is five times the interest rate portion. Because this is a low interest rate loan, I have never made any purchases on this card. I have filed a compliant with the Office of the Comptroller of teh Currency, but I have little faith in the government. Here are the rationale for this change in my opinion:
Get low interest rate card holders to send in more s that the low interest rates are paid off quicker. Circumvent the new legisilation whereby any amounts over the minimum are used to pay the higher interest rate (for borrowers with multple rates on their purchases and/or balance transfers. If they raise the minimum rate, you have less opportunity to make a higher payment that can be applied to higher interest rates. Ther are also hoping that some card holders will default with the higher minim payments to raise their rates and accrue more fees. With the economy in bad shape, many borrowers are paying their minimums and hoarding cash in the event they lose their job.
If the OOC complaint does not work, I will close my account to guard against any rate increases in the future (even though my rates are “fixed”). I will take a small hit on my FICO score initially as my utilization arte will increase, but I recently refinanced my home at less than 5%, have a new car, so it will rebound quickly. I also have never paid a bill late in my life secured or unsecured and have an excellent FICO score.
We should also be careful of annual fees which may be instituted also to add revenue.
I think the new market will be credit cards that have rewards for those who pay in full each month. I also see the increase in using same as cash programs for big ticket items such as furniture rather than credit cards.
Does anyone think there could be fees for debit cards next such as annual fees?
August 25th, 2009 at 9:00 pm
when there’s a class action, please post it on this site. I too was screwed, am now really screwed, and will need to go screw someone else to pay for this.
September 1st, 2009 at 4:17 pm
I too got hit with the new 5% min rates on a 3.99% for life offer I had with Chase. I transferred 19K on the account and have paid down $5K of it, and also allowed Chase to auto-deduct so I would never miss a payment. I wish there was some sort of Class Action Law suit for Breach of Contract on this. I would not mind if they started all new offers with telling you 5% payment up front instead of trying to stick you after you have already taken them up on their offer.
September 6th, 2009 at 4:31 pm
This is in response to Lynda who mentioned that possibly taking Chase up on their offer to “skip a payment” resulted in being targeted for the 5% minimum payment increase. I just wanted to let her know that if she took advantage of this, she did the RIGHT thing. I did not do it because I thought it was a trick to find out who might be having financial problems so I declined. Now I wish I had done it because then I was hit with the 5% minimum and wondered if I had made the wrong decision by NOT skipping the payment because it may have looked to them like I could afford the high increase. I had to come up with $950 (from $350)which now leaves me short for my other bills – and they offered me no 7.99 deals or hardship loan or anything else. The “hardship number” they gave me was the number of a credit counseling service who wanted me to pay them $20-50 per month and they would “try” to negotiate with Chase for “possibly even a 6% rate”. I am paying 4.99 now which means they could do nothing for me. He said “yeah but if you don’t your payment will be sky high”…In addition I would be forced to close all my OTHER credit card accounts and let them dole out my money as they see fit. This “option” only benefits Chase. It guarantees that they will still get a payment from you (at higher interest) and your other card companies who have done nothing wrong will get less than they were getting when you were paying the bills. If you don’t have the money to cover Chase’s ridiculous payment demand then obviously you are going to pay your other bills before you pay them. This will not be a possibility if they can get you into credit counseling. It protects THEIR interest and they are the one who put you in a hardship situation in the first place. CCS takes the decision out of your hands who to pay each month and how much. Also I’m sure it messes up your credit although they deny it. Your other creditors are NOT going to be happy getting a reduced payment (all because of Chase) and they can close your account or do anything they want to retailiate even though you did not want them involved in this situation in the first place. (If you go to CC it looks like you can’t handle your bills to other credit card companies.) Well,we were all handling them just fine until Chase Bank deliberately made our monthly payments unaffordable. I still wonder if this credit counseling service and debt liquidation company is owned by Chase and are new businesses they have started on the side. By creating a crisis situation for their “better” customers it gives them an immediately customer base of people who have proven that they will pay their bills on time (and will pay off the “hardship” loan.) There needs to be an investigation into this. If Chase doesn’t outright own these companies than they must have a large share in them (possibly under a different name.)
September 6th, 2009 at 4:38 pm
There should be some way to edit our posts on here.I meant it gives them an IMMEDIATE customer base(not an “immediately” one…)
September 6th, 2009 at 4:55 pm
We can also thank those Fat Cats at the Federal Reserve for “encouraging” these minimum payment increases. Thanks to their bloated salaries they are out of touch with reality. They were so worried about the mortgage crisis(because it might effect THEM) but they have created THIS crisis by allowing and encouraging this high minimum payment crap. The people affected by this are not using their credit cards buying stuff they don’t need. These were LOANS, just like their car and home loans. I guess they need to have THEIR minimum payments triple(for their expensive cars and yaachts and vacation homes,etc.) Then maybe they won’t be so “reluctant” to stop these abusive and unethical practices. I wonder how many suicides and bankruptcies will result from their “reluctance” to protect us “little guys” from financial ruin.
September 10th, 2009 at 8:28 pm
If you call customer service and the first person tells you there is absolutely no way to opt out of this minimum payment increase- the trick is to ask to speak to their supervisor who will tell you that this move is for your own good because you will get the debt paid off faster. But if you continue on and inquire as to whether Chase is attempting to drive you into default when you have never missed a payment before etc. Then she or he will reveal that low and behold there IS an option which is for you to voluntarily agree to double your interest rate from 3.99% to 7.99% for 23 months and then return to the standard rate after that- in exchange for keeping the 2% minimum payment. Of course they don’t mention that the terms of their blackmail will, of course, greatly extend the length of time you will be paying on this debt while greatly increasing their profits- but you will at least be able to keep your low payment and hopefully your credit rating. It is financial extortion by a bank that was bailed out with our tax dollars. How can the fed just sit back and let that happen? They surely can do the math on those low rate til it’s paid of deals. It doesn’t take a rocket scientist to figure out that Chase isn’t doing this for people’s own good. A large number of people in this economy can’t afford a 150% increase in almost any bill. Take a second to imagine if your mortgage payment suddenly went up 150% or even just doubled and you only had only 20 days to come up with the differance. For alot of people it is just not going to happen and they are either going to stop paying the bill entirely or have to agree to the higher rates. Chase encouraged people to transfer balances and use their purchase checks by offering these rock bottom rates and also large credit limits so many of the people they are targeting (myself included) are carrying large balances. They are not using the card for purchases but treating it like a low-rate consolidation loan. Chase knows this and apparently doesn’t like it- (even though they are the ones who invited it) -so they have set out to sabotage some of their best customers. I certainy had better not hear these bankers on CNN whining about how people are being irresponsible and not paying their credit card bills on time etc. What is the name of Chase’s CEO? Satan?
October 5th, 2009 at 3:05 pm
Same deal for me never made a late payment in my life. Switched to Chase to buy a car on 3.99% for life. 20 year Chase customer. Now the major change that has put us in a tailspin by increasing our payment 250%. Called these thieves at Chase. Does anyone know of a website where we can unite and see these theives that change our terms after we made the deal brought to justice?
January 18th, 2010 at 2:44 pm
Same here as everyone else.
low interest LoL of $25K paid down to ~20K.
payment is obscene now.
Was informed I can’t opt out.
So I sent them a certified mail letter, to their Wilmington DE address, attention account manager.
Enclosed was a letter detailing new terms of $277/mo for 72 months, which would pay the balance off in 6 years with no interest. Enclose the first payment as a check. Cross marked the check and letter referenced to each other. Noted on both and depositing the check was acceptance of the terms. They cashed the check. Then called for more money. Every day. I talk to them at least 4 times a week, all calls sourced by them (this is harassment).
They have claimed I can’t bind them to the contract, but I beg to differ. It shows offer (letter) consideration (check), and acceptance (by account manager cashing said check).
Since my statements don’t reflect the new accepted contract terms I’ve quit paying them.
I have simply given up. My 740 FICO will be in ruins, but there is nothing else I can do (aside from murder suicide, which is simply silly).