Jeanette A. Tucker | 3/15/2006 2:53:53 AM
Consumers who make only the minimum payment on their credit card bill each month can expect to write bigger checks. That’s because many credit card issuers are increasing their minimum payment amounts.
Minimum payments are rising because federal banking regulators expressed concern about borrowers going deeper in debt and taking too long to pay off their balances, according to LSU AgCenter family economics professor Dr. Jeanette Tucker.
Guidelines issued by the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision do not require minimum payments to rise by a fixed amount.
With few exceptions, however, by the end of 2006 they expect credit card issuers to be in compliance with guidelines that require payments to cover fees and finance charges, plus 1 percent of the principal, Tucker explains.
These changes will affect millions of consumers. A survey by the American Bankers Association revealed that 43 percent of consumers carry balances each month. Some cardholders could see their minimum payments double, from 2 percent to 4 percent of the balance. On a $10,000 balance, the payment could jump from $200 to $400.
Tucker says that in the short run, higher minimum credit card payments will put the squeeze on many households and likely cause many to go into default.
The American Bankruptcy Institute expects more filings from low-income cardholders who can’t handle higher credit card payments.
"Yet it may not be feasible for some to declare bankruptcy because of stricter bankruptcy rules that went into effect last October," Tucker says.
In the long run, however, the family economist says the new rules should enable more consumers who do carry balances to pay them off quicker and therefore pay less interest and other fees.
For related family economics and consumer topics, click on the Family and Home link on the LSU AgCenter homepage, at www.lsuagcenter.com. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.
On the Internet: LSU AgCenter: www.lsuagcenter.com
Source: Jeanette Tucker (225) 578-1425, or Jtucker@agcenter.lsu.edu
The LSU AgCenter and the LSU College of Agriculture