FORT LAUDERDALE, Fla. – A warning to all those credit card holders who pay just the minimum amount due each statement: Your monthly bill is probably going to increase, if it hasn’t already.
Several major card issuers – including Citibank, MBNA and Bank of America – have raised or in the coming months will raise the minimum payment required of their cardholders.
The reason: In 2003, the federal Office of the Comptroller of the Currency, part of the Treasury Department, issued guidance requiring banks to have their monthly minimum payment cover interest, any fees and paying down principal. But some institutions are just now implementing the changes.
For instance, Citi Cards will up their minimum payment requirements this year so the amount covers finance charges and 1 percent of a card’s balance, said Janis Tarter, a spokeswoman for Citigroup.
Bank of America changed its minimum payment requirements last year and now charges cardholders at least $10, plus fees and interest, said spokeswoman Betty Riess.
MBNA will apply its changes later this year.
Many banks require minimum payments that work out to be about 2 percent of a card’s balance. When the changes take effect, the minimum requirement could be as much as 4 percent, experts say.
Payment doubled
For someone with a $2,000 balance on a card, that means the difference between a $40 minimum payment and an $80 minimum payment.
Since a credit card is essentially a loan between the cardholder and the issuer, the loan eventually has to be paid back. But officials found some people had a hard time paying down those balances if they were just paying the minimum.
In some cases, the balances increased even after a payment was made, because the minimum payments weren’t enough to cover all the interest that accrued on the account, said Kevin Mukri, a spokesman for the Office of the Comptroller of the Currency.
Getting out of debt
“We require banks to not carry bad loans on their books,” Mukri said. “Sometimes these (credit card) balances would increase, and there’s no way the consumer could pay it back.”
Though regulators’ concerns stemmed from ensuring banks got paid back, Mukri said there also was worry that cardholders weren’t going to be able to get out from under their debts if they paid small minimum balances.
But some consumer groups fear the impact on cardholders, particularly those who already have a tough time making that minimum payment.
“I’m just really concerned that this is going to cause people to default that much quicker,” said Catherine Williams, vice president of financial literacy for Money Management International, a Houston-based nonprofit group.
that offers credit counseling services and other financial education programs.
About 60 percent of people don’t pay the full amount on their credit cards each month, Williams said, though she’s not sure how many of those are just paying the minimum.
She fears people on tight budgets may start skipping some payments – like paying the electric bill or telephone bill late – in order to meet their credit card obligations.
“I think we’ll see the whole collection spiral really come into play, and people will be in trouble faster. That will then force them to make some decisions,” Williams said. “Hopefully one of those is we have to quit spending, not only on credit but we have to watch our discretionary (spending).”
Experts suggest if you think you might have trouble making minimum payments, you should call your credit card company and explain your situation and see if they’ll work out a payment plan for you.
Consumers should realize that paying the minimum amount due typically isn’t enough to pay off their debt, said Norma Garcia, a senior attorney with the Consumers Union, the nonprofit publisher of Consumer Reports.
“What does the minimum balance take care of? In most cases it’s not much,” Garcia said.
Comments are no longer available on this story