Increase in Minimums May Max-Out Many Consumers
By Kathy Chu
USA TODAY
In case you weren't spending enough this holiday season to buy gifts and heat your home, you might have to take another hit: higher credit card payments.
Nearly three years after regulators said minimum monthly payments should let you pay off debt in a "reasonable period of time," some banks are finally acting.
Most of the top 10 credit card issuers have raised their minimum payments this year.
Regulators urged banks to adjust their minimum payments by the end of this year. The banks' delayed response to the guidelines issued in January 2003 means millions of people are being hit with higher credit card bills this holiday season.
The increase comes just as energy bills are soaring and a new bankruptcy law has made it harder to erase debt.
Banks say it takes time to update systems to accommodate the regulators' instructions. "These are not simple changes," said Alan Elias, a spokesman for Washington Mutual.
Still, "With a few exceptions, we expect them to be in compliance by year's end," said Barbara Grunkemeyer of the Office of the Comptroller of the Currency, one of the agencies that issued the guidelines.
Regulators didn't require minimum payments to rise by a fixed amount. But they said payments should cover fees and finance charges, plus 1 percent of principal. Until now, some minimums didn't even cover the interest owed, so debt would just kept growing.
Some card holders could see their minimum payment double, to 4 percent of the balance from 2 percent. On a $10,000 balance, the payment could jump to $400 from $200.
In the long run, the change is healthy for consumers: It means they'll pay off their credit cards more quickly. But at least at first, the higher payments could create financial hardship.
John Penn of the American Bankruptcy Institute expects more filings from low-income consumers who can't handle higher credit card payments. "If one of your bills doubled, it won't knock you out of the game immediately," Penn said. "You'll be late on some other bills, and you'll scramble, and it'll catch up to you eventually."
Yet it might not be feasible for some to declare bankruptcy.
"If (issuers) had done this a year ago, consumers who were underwater may have considered bankruptcy," but they may think twice about doing so after the stricter bankruptcy rules have taken effect, said Chi Chi Wu, staff attorney at the National Consumer Law Center.
