Credit Cards Raise Minimum Payments

Remove all ads!

As per the title, you can read it here.

Here's the short of it: A few years ago Chase offered their creidt card customers to transfer balances for the life of the card with just a 5% interest rate. (This was before the mortgage rates dropped, and 5% from a credit card was a better deal than getting a home equity loan.) The minimum payment on the cards were 2% of your initial balance, meaning you'd pay the loan off in about 8 years.

Recently, Chase announced that they would be raising the minimum payment from 2% of your original balance to 5% of your original balance. At first, this seemed odd to me, because if you raise the minimum payment, you'll pay the loan off faster, and Chase would then make less money in interest.

But here's the catch - part of the stipulation of the transfer terms was you only get to keep the 5% interest rate if you made all of your payments on time. What I think is happening here (and the article alludes to this) is that Chase is expecting some customers to not be able to make the increased payments on time, and as a result, have their interest rates raised.

Evidently this is a loophole in the credit card reform that went into effect - it stopped credit card companies from raising your interest rate without cause, but it doesn't prevent credit card companies from raising your minimum payment so that you break the terms of your agreement and then penalizing you for it.

I think this is pretty sneaky - your thoughts?

 

Look, these guys are in business for the same reason everyone else is in business -- to make money. The more money the better. They are not altruists nor philanthropists. People should know that before they start using credit cards.

That said, they found a loophole, and they're gonna use it. It's not very nice, but it's a fact of life. I recommend that people live within their means and perform a little plastic surgery on their extraneous credit cards.

 

I agree LKD. It's not the lenders fault you agree to something you probably couldn't afford. I will only use credit when i'm in a bind for cash. But ONLY if i can afford to pay it back that month. There are so many people out there lacking the understanding of financials or just not caring at the time, it's scary. That's what the lenders thrive on. If you agree to a contract that allows them to raise the minimum, that's on you when they do. The minimum shouldn't be that much in the 1st place, unless you go on spending sprees that you simply can't afford. I have no sympathy for anyone who digs themselves a big hole of debt. Get a second job for a month or two and pay it off, don't let it get out of hand and complain about it, expecting someone to bail you out.

If you can't afford the purchase, don't buy it. It's that simple.

 

Eight year repayment of a credit card is insane. The minimum payment should have been raised years ago. Credit limits should be based on what you can pay. I have always seen credit card companies raise rates for those who are a financial risk -- failing to make a payment qualifies. Since nearly every credit card has rules which are "subject to change without notice" I don't really think this is all that sneaky.

IMO, Chase is really trying to weed out the deadwood in their credit card department -- those people who continually make minimum payments while maxing their cards. These people tend to never pay off their credit and often default. This type of action will certainly speed up that process and it will ensure future defaults are at much lower amounts (once a person misses a payment, credit limit is lowered). Those people who do not want to default will take out secured loans to pay off the credit card -- this is much safer for the bank (and investors) in the long run.

"James" was an idiot to use a credit card for a home improvement project -- that's what home mortgage line-of-credit accounts are for (at much the same interest rate, but more stable). He would have had a five or ten year repayment instead of an eight, and the payment would not change unless he borrowed more. His option now is to actually take out a mortgage based loan and pay off his credit card. A little financial responsibility goes a long way.

 

On the other hand, I think that the government should step in and regulate how much credit these companies can offer to people who are likely unable to pay. Just as in the mortgage thread, it is immoral to give a loan (or by extension, credit) to someone who is clearly unable to pay it back. That seems to me to be a highly technical form of tricking someone into slavery or bondage, albeit only a financial form of bondage (sorry, the weekend is coming and I've got certain things on my mind!! )

 

There's a risk in that model, which is that the payer may default. That would leave Chase stuck like a duck. People who owe credit card companies are customers, without them, Chase would not be in the credit card business in the first place. And those customers who use credit cards create a great deal of wealth for banks who in deal in credit. Otherwise, everyone, even those without credit cards, would be paying more for banking services.

As someone noted, a bank is a business not a charity. Banks are on record as noting that higher fees placed on those "deadbeats" actually helps to keep fees reduced in other banking areas. It was one of their objections to the Credit Card Reform Bill. Rasing the minimum payment a few percentage points doesn't seem all that unfair to me. And they really may need the cash, since people are now using their credit cards much less. That said, Chase would do well to treat its customers fairly. Everyone knows that if you don't take care of your customers, someone else will.

EDIT: I just got around to reading the entire link, and I see that Chase has factored the default rate into its model. That's just crazy talk. Of course, there's still all that unsed TARP money laying around for banks...I'm just glad I'm not in debt to any of these guys.

 

Some people see credit as a way of improving their standard of living, they cant afford a comfy new bed, but credit can. While I do not agree with risking everything for debt, I can sympathise with it. I maxed out credit cards myself when I was in college.

But I always made my payment on time, credit cards have always had the position where they can charge for late payments, the UK government has recently stepped in and limited what companies can charge as a late fee, but its always there, I dont see how this is much different.

 

Well, I suppose the idea that low interest rates should be offered only to lower credit risks. (I am resisting commenting on sub-prime loans here.) And if you can’t meet your minimum payments, you’re not a low risk. So I see nothing wrong with what the credit card companies are doing here.

Not that it affects me. Like many others, I use credit cards as an alternative to carrying a lot of cash, and pay off the full balance monthly.

 

It seems we have many wise financial investers here, which isn't a surprise. Unfortunately, most people aren't that. There are a lot of people who, just like Shoshino said, use credit to improve their standard of living. They apparently don't understand the idea that they'll have to pay that money back at some point.

All in all, I'm not complaining about what Chase did. I have a Chase card, in fact it's my primary card (of only about 3), and I've never had a problem with them. Of course, I'm of the school that my credit card is just a shortcut to my bank account, so I don't spend more than I can afford to.

 

That had a point, risky but a point. That is a risk worth taking. A lcd tv or SUV not.

I do not own one. I do not have an overdraw on my account. I cannot afford to, I earn not enough money. If I were to use a credit card for fun, I will end in the gutter.

 

Beren, that's a good point. My wife and I have been living off our credit card a bit recently (savings are almost all gone), but we've kept the debt down to just about 2-3 months worth of costs from when we were living with income (which was already rather miserly). I figure, once either one of us gets a job, we can pay that back in no time.

Credit cards can make a nice safety net, just don't get comfy on that safety net.

 

Note - I'm not saying that I have a problem with Chase charging for late payment fees or charging for people who do not make the minimum payment. My problem is that they are changing the rules of the game mid-stream.

While I pay off my credit cards every month (and I actually have a Chase Perfect Card as my primary card), there have been times in the past where I purchase something where the deal is 12 months same as cash, or something like that. This happened a few years ago, when I purchased my Bowflex. The machine cost $2000, so I figured if I paid 1/12 of the cost each month, I'd pay it off and not have to pay any interest, and the $180 or so dollars per month (once you figure in sales tax) was within my budget. What Chase has effectively done here would be the equivalent of Bowflex saying right after I bought it that instead of having 12 months same as cash, they are only going to give me four months, and now I have to come up with about $500 per month which I hadn't budgeted.

Some of these people may have entered into these agreements in good faith. Say James referenced in the article uses his Discover Card as his primary card, and has his Chase Card as his backup. Perhaps he figured he could get the low interest payment on the Chase Card and pay off his regular monthly bills with his Discover Card. Perhaps with a 2% minimum payment option, it fit within his budget, but not with a 5% minimum payment option.

 

I only use Visa-Electron. These days most online stores accept the card and it deducts the money directly from my bank account the next day, no credit card bills and no fuss. Mostly though I prefer handling with cash, it is the best way to monitor my monetary inflow and outflow.

 

The thing is the card owners entered into the agreement. They just didn't read the fine print, as in the rates can change upon certain variables meeting said criteria. They take the risk of the rates changing. If the card owner can't understand this going in, they shouldn't dable in credit that they can't comprehend. Crying about it after the fact is just ridiculous.

 

Vanatar, your compassion is astounding!

However, smart aleck comments aside, you are right -- if you don't know the rules of the game, you shouldn't be playing it.

That said, though, there ought to be firm rules about full disclosure set up by the government.

 

I agree with that - except that Chase changed the rules of the game. The rules were you have to pay back at least 2% of your borrowed amount per month, and that we won't raise your interest rates so long as you make timely payments. Now Chase is saying that even if you were making your 2% payments on time, it doesn't matter - you have to pay back 5% per month. It's legal, because while the agreement stated you had to pay back 2% per month, the only thing they said they wouldn't change is the interest rates, not the minimum payment amount.

However, to me this is a lie by omission - just because you didn't tell people that you could change the minimum payment shouldn't mean that people should expect it. In fact, I've never seen a stunt like this before. If it were common place for credit card companies to change the minimum payment amount, then I could see people saying, "You should have seen this coming." But because it hasn't happened before I don't think that is a reasonable assessment.

And they aren't raising this by a little bit - going from 2% to 5% is a 250% increase! I view it as the equivalent of a bank changing your mortgage from a 30-year loan to a 15-year loan and expecting people to be able to afford it.

This seems to me to be pretty cut and dry - Chase is exploiting a loophole in the credit card reform law that was passed by Congress earlier this year. One of the stipulations of the law was that increases in rates would only apply to future purchases. So if you had a credit card with a 15% interest rate, and the card company decided to increase your rate to 20%, the new rate would only apply to future purchases, and anything that was already charged before the rate change went into effect would remain at the 15% rate.

 

Fine print, I love that term.
I would like to see a law restricting just how small that fine print can be, my mother, even with her glasses cannot read it

 

Two things:
1) A credit card is not a fixed term loan contract, which has rules in place for the life of the contract. You could have the same credit card for 100 years if you lived that long. Does anyone really expect the rules to stay the same for 100 years? The rules of a credit card arrangement can change every day if they need to.

2) A BowFlex!!?? Finally, I meet the person who watched that infomercial and bought one! Question: do you actually use it?