Credit Card Minimum Payments
How low did they go and where are they headed?
What are the implications?
Enquiring Minds just might be wondering about this.
Intrigued by an article I found on Wednesday about minimum payment rules I decided to do a little digging.
Here is the article:
Bank of America raises minimum payments on credit card accounts
miami.com
For those that do not want to register to the Miami Herald, here is the gist of the article:
1.Industry wide, the minimum payments used to be about four percent. In recent years, some issuers lowered minimums to just two percent of the balance
2.Travis Plunkett, legislative director of the Washington, D.C.-based Consumer Federation of America stated “Consumer groups have been urging these companies to stop lowering the size of payments for years" It was a deliberate strategy by credit card companies to appeal to their ideal consumer - someone on the debt treadmill who is paying his bill but won't pay it off for years."
3.The first company to boost monthly minimums was Wilmington, Del.-based MBNA Corp., which services the credit cards issued by Bank of America's cross town rival, Wachovia Corp., along with its own cards.
4.BOA became the second major credit card issuer to tighten payment requirements since the federal Comptroller of the Currency suggested in late 2003 that consumers would be better served by higher monthly payments.
Since I am quite interested on credit tightening and think it will come in a big way in some huge credit crunch of unknown timing, I decided to double check the facts in the article. Unfortunately, much of the information and examples in the article was misleading or incorrect. Here are the results of calls to BOA and MBNA to find out minimum payment requirements.
BOA www.bankofamerica.com
I quickly found a number from their website to call and did so.
The representative was very helpful and answered all of my questions.
I was told that the old policy was not 2% as the article stated but Finance charges + $10.
The new standard is Finance charges + $10 + 1% of the balance.
It appears to me that somewhere along the line minimum payments dropped nearly to zero, not the 2% suggested above.
The old “standard” used to be 4%. We are a long ways away from that.
Still, from 0% to 1% might be significant to some people.
MNBA www.mnba.com
The MNBA website was interesting but not very helpful.
One might think that clicking on the “Customer Service” button would get you MNBA customer service but instead it gets you articles about customer service, none of them pertaining to MNBA at all.
Also of interest was a home page that had links to casino games such as the ever popular texas hold-em.
Eventually I found a link that had a phone number to open up a new MNBA account.
I called but they refused to disclose what the minimum payment rules are.
I told them I was a cardholder. I am actually, but it just did not matter. They refused to tell me what the policy was.
I said I wanted to get another card. They said OK. I asked what the minimum payment would be.
They could not or would not tell me even if I was to open up a new account!
Now supposedly someone thinks that they tightened credit lending standards but if so, does anyone really know what they are?
Since I pay off all my balances every month, it does not matter to me, but I would think there would be a law requiring them to disclose what the rules are.
I guess they only tell you after you open up the account, and probably buried deep in fine print somewhere.
I found this simply amazing.
Comments & Implications: I think credit standards will be tightened and tightened again. The process has likely just started. We went from 4% minimum payment to 0% minimum payment (interest only) and are probably headed back up. When (not if) bankruptcies and missed payments head higher, I expect further tightening of credit card standards. People with home equity have been taking out HELOCs or doing cash out refis to pay off higher interest credit card debt. It is possible that we are coming to the end of that line, especially if (when) home prices drop. What credit card debt that is now left, especially at the sub-prime card lenders just might be of questionable as well as deteriorating quality. Consumers that are barely scraping by just might have a harder and harder time making payments.
Michael Shedlock
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