Survey Finds Largest Credit Card Issuers Not Doubling Minimum Payments
Survey
Finds Largest Credit Card Issuers Not Doubling Minimum Payments
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 top 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 Adam Jusko,
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 the 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.
Below
are the specific minimum payment standards from the seven largest
credit card issuers, in alphabetical order, as reported to IndexCreditCards.com
by representatives from the companies:
- American
Express - No change in minimum payment formula. To calculate
minimum payments, American Express first takes the highest
of the following figures: 2% of the outstanding balance, or
all current finance charges, or $15. (If current finance charges
is the highest of these three figures, the company uses finance
charges plus $15 as the first part of the minimum payment
equation. This usually ensures that part of the principal
is paid.) The company then adds any past due amounts and any
over-the-limit fees to come up with that month's minimum payment.
- Bank
of America - Minimum payments equal 1% of the principal balance,
plus all current finance charges, plus fees such as late payment
or over-the-limit fees.
- Capital
One - No minimum payment changes. Company uses 3% of the overall
balance, or $15, whichever is greater, as the monthly minimum
payment.
- Chase
- Minimum payment equals the higher of these figures: either
2% of the outstanding balance, or 1% of principal plus finance
charges plus fees.
- Citibank
- Minimum payments equal 1% of the principal balance, plus
all current finance charges, plus fees such as late payment
or over-the-limit fees.
- Discover
- No minimum payment changes at present. Minimum payment equals
2% of the outstanding balance. A company spokesperson declined
to say whether Discover will make changes to this standard
in the future.
- MBNA
- Minimum payments equal 1% of the principal balance, plus
all current finance charges, plus fees such as late payment
or over-the-limit fees. (Note that while MBNA is listed separately
here, the company was acquired by Bank of America as of January
1, 2006.)
Published 1/4/06 (Modified 5/7/12)
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