topic Re: Preposterously small minimum payment in Credit Cards

Preposterously small minimum payment

MattH — Mon, 23 Feb 2009 13:20:01 GMT

My wife and I paid most of our monthly bills last night, including Chase Visa which this month had a rather large balance of about $3500 because it included a $2000 charitable donation (for a scholarship in memory of my grandmother at the University where my parents used to teach). We paid in full as usual, but I was astounded to notice the minimum payment on that Chase Visa was just $70.00! Even if they didn't ratejack and kept the APR at its current 5.24% it would take about FIVE YEARS to pay off the balance at $70.00 per month.

Even in postdoctoral days when we sometimes had to carry a balance for cash flow reasons we always paid at least 25% of the balance on every card every month.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 13:43:37 GMT

Juniper CC requires a friend to only pay $40 a month....interest charges, over the limit fees, plus that wonderful "insurance" cost him (on average) $100 a month...

Yes, you read that correctly. Additional, non controlled, charges each month EXCEED the minimum payment requirement.

This is the same cc company that misapplies payments (you send it in, they cash the check, but do not give you credit for it).

This is the same cc company that had a problem with their online site that would not allow customers to see their balances or make payments. Their solution was to send an apology email out and tell everyone that they are credited back all late fees, over the limit fees, and interest. Ha!

Ha! When the friend asked for it -- the credits promised to automatically apply back to the account -- they said you have to file a claim and dispute the charges!!! After they investigate, they will respond.

Juniper is one that I recommend people avoid.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 13:44:03 GMT

I don't think 2% is all that unusual, MattH. I've received that as a minimum on a Chase account since its inception, and recently a Cap1 account reduced its minimum to 1%. Of course, it would take forever to pay off at that rate, but it is nice to know a payment could go that low if need be, without a default.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 14:07:03 GMT

@Anonymous wrote:
I don't think 2% is all that unusual, MattH. I've received that as a minimum on a Chase account since its inception, and recently a Cap1 account reduced its minimum to 1%. Of course, it would take forever to pay off at that rate, but it is nice to know a payment could go that low if need be, without a default.

Perhaps companies are trying to help its customers not default. I find that hard to believe, but my revolving balance of $4k on my Chase no interest card was only about $86 dollars, which would have taken over 4 years to pay off with no interest, but the interest would have started being charged in March, had I not paid the card off this month, so it would have taken a LOT longer to pay off.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 14:16:01 GMT

I think it would absolutely be in its best interests for any bank/lender to help a customer to not default.

The old adage, "You can sheer a sheep many times, but you can skin him only once" comes to mind, for some strange reason.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 14:20:19 GMT

@Anonymous wrote:
I think it would absolutely be in its best interests for any bank/lender to help a customer to not default.

The old adage, "You can sheer a sheep many times, but you can skin him only once" comes to mind, for some strange reason.

I completely agree, I just don't think banks/lenders are doing that.

Afterall, Chase is the one that is adding fees to their low interest rate BT's and upping the minimum payment because, 'They want their money'. For some people having the min payment due upped to 5% is doable, for others it will break the bank.

Re: Preposterously small minimum payment

Anonymous — Mon, 23 Feb 2009 14:57:06 GMT

What's your point, MattH? That you are a better and smarter payer than some people? Or that banks are not our friends, always with our best interests at heart?

That is hardly news, and I'm sure you already know it.

Message Edited by ChesterPDexter on 02-23-2009 06:57 AM

Re: Preposterously small minimum payment

Anonymous — Tue, 24 Feb 2009 00:58:45 GMT

@Anonymous wrote:
What's your point, MattH? That you are a better and smarter payer than some people? Or that banks are not our friends, always with our best interests at heart?

That is hardly news, and I'm sure you already know it.
Message Edited by ChesterPDexter on 02-23-2009 06:57 AM

Not quite sure of your tone ChesterPDexter.

I think the point of the OP was simply that he was astonished with the low payment due on the CC. I am always amazed at the low minimum amounts due on my own CCs. We all know that if you only pay the minimum due on a large balance, it can take years to pay the balance off. That is why I PIF.

Re: Preposterously small minimum payment

haulingthescoreup — Tue, 24 Feb 2009 03:14:33 GMT

I was amazed that on a 0% BT, BofA was only charging 1%.

My assumption was that they hoped that I would not pay off the balance in 15 months and would then have to start giving them some interest. Silly them.

x

Anonymous — Wed, 01 May 2013 01:08:01 GMT

Re: Preposterously small minimum payment

Anonymous — Tue, 24 Feb 2009 04:17:58 GMT

Frontline (the PBS show) did an episode called the secret history of the credit card. You can google it.

In the course of the episode they interviewed Andrew Kahr the credit card industry consultant responsible for many marketing and product changes in the credit card industry since the early 1990s.

He was interviewed under the conditions that his client list would not be revealed and that his current location would not be revealed (town/State).

Prior to his involvement the Minimum payment used to be a self set industry standard of 5% of the balance.

Kahr came up with the idea to drop it to 2% as it would:

increase the amount of transactions people would charge as 5% of $3000 was a $150 a month payment where 2% was a 60.00.
increase the length of time people would keep balances and willingness to churn therefore increasing interest income
increase the amount of time it wold take people to pay them.

Once the companies he consulted to switched to this, others followed suit as they were losing business to these more "consumer friendly" terms

Re: Preposterously small minimum payment

MattH — Tue, 24 Feb 2009 12:17:46 GMT

@Anonymous wrote:
Frontline (the PBS show) did an episode called the secret history of the credit card. You can google it.

In the course of the episode they interviewed Andrew Kahr the credit card industry consultant responsible for many marketing and product changes in the credit card industry since the early 1990s.

He was interviewed under the conditions that his client list would not be revealed and that his current location would not be revealed (town/State).

Prior to his involvement the Minimum payment used to be a self set industry standard of 5% of the balance.

Kahr came up with the idea to drop it to 2% as it would:

increase the amount of transactions people would charge as 5% of $3000 was a $150 a month payment where 2% was a 60.00.
increase the length of time people would keep balances and willingness to churn therefore increasing interest income
increase the amount of time it wold take people to pay them.

Once the companies he consulted to switched to this, others followed suit as they were losing business to these more "consumer friendly" terms

Here is a transcript of that Frontline episode WGBH

The decision to lower the minimum payment indeed had a dramatic impact in altering consumer psychology, and also allowing credit limits to become much much higher. But my favorite quote in this piece comes a little after the Andrew Kahr interview:

Prof. ELIZABETH WARREN: I've read my credit card agreement, and I can't figure out the terms. I teach contract law, and the underlying premise of contract law is that the two parties to the contract understand what the terms are

Incidentally, according to Wikipedia "Andrew Seth Kahr was the founder and CEO of First Deposit Corp, which later became known as Providian, and was acquired by Washington Mutual in 2005," which Frontline was not allowed to mention. Kahr got a Ph.D. in Mathematics at MIT in 1962.

Those interested in the history of credit also should know about the Supreme Court case: MARQUETTE NAT. BANK v. FIRST OF OMAHA CORP, the 1978 decision that basically eviscerated State usury limits on interest rates and thus made the subprime credit boom possible. The Court ruled that a State could not enforce its usury law against out-of-State companies lending to its residents. As a result, nearly all national credit card companies moved to States without usury limits, thus evading the limits most States impose on interest rates. Before this case, most credit card companies were quite strict about whom they would accept as customers because there were limits on their ability to raise rates on many of their customers.

Message Edited by MattH on 02-24-2009 07:17 AM

Re: Preposterously small minimum payment

Anonymous — Tue, 24 Feb 2009 12:32:10 GMT

Excellent post, MattH! Especially poignant in light of the new CC rules to take effect in 2010, which explains why the credit card companies are protecting themselves by rate-jacking their customers now...

Re: Preposterously small minimum payment

MattH — Tue, 24 Feb 2009 12:44:26 GMT

I think a core premise in much credit marketing is many people tend to assume their financial situations will be much better at some future date than they are right now, so they pay more attention to how much they have to pay up front than to the actual total cost of a purchase.

Re: Preposterously small minimum payment

Watchmann — Tue, 24 Feb 2009 15:07:36 GMT

Unfortunately we have become a nation of Payment Minimizers rather than Wealth Maximizers. Prior to about 10 years ago people would look at what the TOTAL cost of a house, car, and other items were going to cost and plan accordingly. And they used cash or checks. Then they started looking at how much the MONTHLY COST of their life style would be, losing focus on what their lifestyle was really costing. A good example is car leasing, surely the most expensive way for non-business people to operate a vehicle, yet people became enamored with the monthly payment and not the total cost. I don't see how the credit industry is responsible for this. We should have been buying average Toyotas, Fords, or Chevrolets and not perpetually renting BMWs or Lexuses. That was our choice.

Most threads here always seem to blame the credit industry for the posters problems, complaining about CLD's or rate jacks. No one force fed credit to any of us, we all engorged in credit by our own free will. People need to stop scapegoating the industry and get on with paying down their debt. Revolving it or transferring it from one card to another is NOT managing your financial life. Those days are over. You have to get rid of it by liquidating it. Unfortunately we are going down the road of instead of paying it off through working harder or tapping savings, we are now more willing to default or, worse, expect the government to bail us out. That is like the drug addict blaming the pusher for his problems. The dealer enabled the addict and should be disciplined, but the ultimate responsibility lies with the user.

Message Edited by Watchmann on 02-24-2009 09:07 AM

x

Anonymous — Wed, 01 May 2013 01:07:34 GMT

Re: Preposterously small minimum payment

Anonymous — Tue, 24 Feb 2009 16:38:18 GMT

Most creditors charge 1% of the balance plus the interest charges from the previous month. I think people forget this is called the MINIMUM PAYMENT,and what the words mean. It is just a number to meet a requirement to pay that month and report current. I don't think I've ever seen a note on my CC statement saying "Please just pay the minimum and nothing else" Perhaps we need to remember that credit card companies don't charge early payment penalties. People should plan on what their balance is and how fast they want to pay it off and not overspend. I just think that some people have not been financially responsible and choose to blame credit card companies. People overspend to the point they can barely make minimum payments. It's like a drug addict blaming their dealer. I've been there and done that...and I think people on here already know it's a bad thing to do...but I still don't understand people who lay the blame on CC companies....I knew what I was doing...

I think there would be more outrage if there was a credit card company that forced you to pay 10% of your balance each month....

EDIT: Watchman, I hadn't even read your post. I love the analogy.

Message Edited by MinnesotaJ on 02-24-2009 08:38 AM

Re: Preposterously small minimum payment

MattH — Tue, 24 Feb 2009 23:32:42 GMT

@Anonymous wrote:
Watchmann,

You should watch the documentary talked about above. In it, Prof. Warren explains that most credit problems are caused by divorce, medical illness, and job loss. Besides, I think it's a little harsh to tell someone that they're at fault for everything crappy in their lives when the credit industry preys upon the consumer and the government does everything it can to protect business, not the consumer. It's a moral outrage that if you get severely sick in this country, you're probably going to have to declare bankruptcy or not get the medical help needed.

I agree 100 percent that health care in the US is a scandal, in just about every other developed country they have some kind of national healthcare. Study after study has demonstrated many other countries deliver comparable or better outcomes to their people at dramatically lower cost.

It is also true that most credit problems are triggered by events beyond the control of the individual.

HOWEVER, an individual who consistently lives above his or her means and uses debt to finance that spending is making himself or herself dramatically more vulnerable to any unexpected events than is an individual who consistently lives below his or her means in order to accumulate savings.

Just as we today live in what medical researchers call an "obesigenic environment" that makes it more difficult for people to control their weight, we in the US currently live in a "debtigenic environment" that makes it more difficult for people to control their debt. Thing is, this debtigenic environment was to a significant extent deliberately created by what my wife calls "credit pushers." Now we as a nation are paying for this with a deadly attack of fiscal thrombosis.

Re: Preposterously small minimum payment

MattH — Tue, 24 Feb 2009 23:52:46 GMT

@MattH wrote:
@Anonymous wrote:
Watchmann,

You should watch the documentary talked about above. In it, Prof. Warren explains that most credit problems are caused by divorce, medical illness, and job loss. Besides, I think it's a little harsh to tell someone that they're at fault for everything crappy in their lives when the credit industry preys upon the consumer and the government does everything it can to protect business, not the consumer. It's a moral outrage that if you get severely sick in this country, you're probably going to have to declare bankruptcy or not get the medical help needed.

I agree 100 percent that health care in the US is a scandal, in just about every other developed country they have some kind of national healthcare. Study after study has demonstrated many other countries deliver comparable or better outcomes to their people at dramatically lower cost.

It is also true that most credit problems are triggered by events beyond the control of the individual.

HOWEVER, an individual who consistently lives above his or her means and uses debt to finance that spending is making himself or herself dramatically more vulnerable to any unexpected events than is an individual who consistently lives below his or her means in order to accumulate savings.

Just as we today live in what medical researchers call an "obesigenic environment" that makes it more difficult for people to control their weight, we in the US currently live in a "debtigenic environment" that makes it more difficult for people to control their debt. Thing is, this debtigenic environment was to a significant extent deliberately created by what my wife calls "credit pushers." Now we as a nation are paying for this with a deadly attack of fiscal thrombosis.

By odd coincidence, Liz Pulliam Weston has some sage advice on the need to prepare for emergencies in her latest column.