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April 1st, 2009

(Update1) Good News for Credit Card Customers?

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Chase has recently introduced two controversial changes to the terms of their credit cards. While the first — a $10/month service fee — has brought on class-action lawsuits, the other is something financial expert Peter G. Miller feels is a great benefit to cardholders.

Chase’s decision to raise their cardholders’ minimum-monthly payments from two percent to five percent on their outstanding balance will serve to greatly reduce interest costs:

One of the great “breakthroughs” of the credit card industry was the decision to lower minimum monthly payments from 5 percent to 2 percent. The result was that people would spend more because there was less due each month and balances would remain outstanding for a longer period of time — meaning more interest revenue for credit card companies.

For instance, imagine that you owe $10,000, have an annual interest rate of 18 percent and make a payment equal to 2 percent of the outstanding balance each month. It will cost $28,525 in interest to pay off the bill, assuming no additional borrowing.

Raise the minimum monthly payment to 5 percent and the interest cost will fall to $4,286.

In other words, Chase is actually doing something good for consumers by raising the required monthly payment.

But not all cardholders agree with Miller. A reader countered Miller’s argument by saying Chase had only increased the monthly minimums for cardholders with an already low interest rate. “Having to pay more on this debt will probably force borrowers to pay less on other debts that have a higher rate of interest. CHASE is not doing us any favors.”

“The reality is that it’s better for credit card borrowers to make payments equal to 5 percent of their outstanding balance rather than 2 percent,” said Miller. Regardless of personal experiences, “the math is the math.”

Readers: Do you agree with Miller or his reader?

UPDATE1: As reported yesterday by The Consumerist, Chase will stop charging the $10 monthly fee referenced in the article above.

From The Consumerist:

Well after having a little chat with New York Attorney GeneralAndrew Cuomo, Chase announced that they’ll stop charging this ridiculous fee and they’ll be refunding customers’ previous payments.

According to Cuomo’s office, Chase will be refunding $4.4 million in fees to their customers, but according the Chase, they’ll be refunding $3.3 million. Chase also says they’re relenting not because of the fear that Andrew Cuomo strikes into the heart of Corporate America, but because of customer feedback.

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16 Responses to “(Update1) Good News for Credit Card Customers?”

  1. Myron Jenkins Says: March 27th, 2009 at 7:31 am

    By Miller’s logic all credit companies should double their required payments, car loans, mortgages etc. Not bad if you have unlimited resources. The “reader” is correct, thinking that Chase is doing this to benefit consumers is nuts.

  2. Jack Foley Says: March 27th, 2009 at 8:57 am

    Hum, many people barely making the 2% payment now required to pay 5%. You’re going to get more missed payments which will result in late payment fees and maybe an over-limit fee if they were close. Plus they’ll be moved to default interest rates at 30% – 36%.

    Ya, Chase is not doing anyone any favors – well, except themselves.

  3. Wow Says: March 27th, 2009 at 12:42 pm

    The math tells the story. Think long-term. There is over $20,000 in savings there. Silly short-term thinking.

  4. Barbara Says: March 27th, 2009 at 2:55 pm

    The math given by Peter G. Miller would be sound were it not based on a false premise. Mr. Miller is assuming 18% interest. Chase is only increasing the minimum payment to 5% of the balance for customers with a low rate of interest (under 4%). Chase is perfectly content to accept a low minimum payment of 2% for customers with a 18% rate of interest because that means more interest for them!

  5. Paul Havemann Says: March 27th, 2009 at 5:02 pm

    Sorry, Myron, but your analogy doesn’t work. Unlike a car loan or mortgage, credit-card debt is unsecured by real property, and thus riskier to the lender. Of course Chase wants their money paid back. Wouldn’t you?

    And, at least in my opinion, if you can’t afford to pay 5% of your credit card bill, you’ve borrowed way too much already.

    That said, credit-card holders in straits so dire that they really can’t afford that 5% nut should run, not walk, to the phone and call Chase to work it out. They would rather hold you to a lower payment than see you default on it.

  6. Barbara Says: March 28th, 2009 at 8:45 am

    Paul, of course Chase wants their money back. And they were getting it! They are doing this to customers who are faithfully paying back their loan according to the original terms. The whole point of this is that Chase changed the terms midstream, for reasons totally unrelated to the customer doing anything wrong! Why did they make these loans in the first place?? The bank was the one that enticed customers (with LOW interest rates FOR THE LIFE OF THE LOAN) to use these balance transfer offers for anything they wanted to.. like home improvments, college costs, etc. If you used it for college costs and planned on paying it back at 2% of the balance (which is much more than if you had gotten an actual “student loan” or “PLUS loan”), then it is likely that paying 5% will be a hardship!
    And, speaking of analogies not working… why don’t they increase the monthly payment on student loans.. they are not secured by real property.
    Regarding your last statement, Chase is perfectly willing to bring you back down to a lower payment if you give up the interest rate they originally promised you!!!
    To try to pretend this is a good thing for borrowers is silly. Borrowers can ALWAYS INCREASE the amount of their payment. To be FORCED to do so is no benefit!
    If the customer is promised a low interest rate, it is in his interest to pay it back slowly and use his money better elsewhere.

  7. Paul Havemann Says: March 28th, 2009 at 11:17 am

    Barbara, I didn’t say that “this is a good thing for borrowers” — Chase isn’t doing anyone a favor except themselves. And since neither of us is privy to their customers’ credit reports, we can’t make blanket statements that their reasons are “totally unrelated to the customer doing anything wrong.” Maybe they wronged you — in which case you have a point — but you can’t speak for everyone.

    “Why don’t they increase the monthly payment on student loans”? Student loans are governed by a loan agreement which is a binding contract; neither party can unilaterally change the terms. As you know, that’s not the case with credit card debt. When you took the card, you agreed to their terms, which included the proviso that Chase could change the terms at any time.

    I’m sorry you don’t like what’s happening, but it’s not my fault!

  8. Barbara Says: March 28th, 2009 at 1:15 pm

    Paul – obviously this is not your fault (unless you are the one making decisions for Chase), and I don’t think I implied that it was. You may not have said “this is a good thing for borrowers”, but that was the whole point of this article.
    And no, I can’t speak for everyone, but I was flatly told by Chase that this was no negative reflection upon me.
    And wherever this proviso is that Chase could change the terms at any time, enticing customers with offers “for the life of the loan” is definitely misleading, and if not outright fraudulent, more along the lines of what you would expect from a loan shark rather than a respectable company.
    Usually when a bank changes terms (and this was even testified to at some sort of hearing by a Chase official), you are given the option to “opt-out” and pay off your balance at existing terms. Not so this time. And that is in part why this particular change was so controversial.
    However, things are looking up. I was told today by a Chase account supervisor that Chase has reversed their position and will be resetting these accounts back to their original terms. When I actually see this in writing, I will applaud Chase.

  9. Barbara Says: April 9th, 2009 at 9:28 am

    For the record, no applause is necessary.

  10. victoj4 Says: June 23rd, 2009 at 10:15 pm

    The problem is that Chase is not raising the percent required on 18% credit balances … but rather the rates of the low interest rates $4.9% rates that they promised people if they would transfer balances to their cards….now people who transferred balances to their card assuming they would have low monthly payments and low interest rates until the balance is paid in full have their payments more than doubled as a result. Shame on chase….from a NOW EX-Chase member.

  11. Tim Manni Says: June 25th, 2009 at 11:03 am

    Victoj4,

    It’s tough, we know. The recent credit card laws passed by the White House are designed to eliminate deceptive practices by credit card companies — let’s just hope they work. Unfortunately the new laws make it harder for those customers who pay in full every month.

    We understand you had good reasoning, but consider reading our post “Should You Cancel Old or Unused Credit Cards?” if you’re considering canceling anymore cards.

    Good Luck,
    Tim

  12. Lynaya McCallum Says: July 8th, 2009 at 12:18 am

    If I would have been prepared for a 5% minimum of my balance, maybe I would have considered another option, even though my interest rate of 3.99 is wonderful. It would have let me calculate all of my monthly payments, including mortage payments, utilities, etc. and I would have known if I could have afforded the 5% of my minimum balance along with my other monthly responsibilities. Speaking of responsibilities, I have always been responsible in making ALL of my payments ontime if not early and usually pay more than the minimum payment. This is such a terrible time for Chase to penalize their customers. Especially the customers who are making responsible payments on time. They are going to create alot of hardships for people and their families and may even lead the RESPONSIBLE to do the unthinkable: Ruin their credit!!!!

  13. Tim Manni Says: July 8th, 2009 at 12:14 pm

    Lynaya,

    Thanks for commenting! Wow you do have a nice interest rate. I hear what you’re saying. While the numbers sound small, the minimum monthly increase to 5% is over double what you’re used to paying. As in your case, and I think it correlates with so many other consumers’, if you’re not prepared for it, it can really throw you for a loop. I do agree that the timing probably could be worse. So paying less interest isn’t any consolation? Financially speaking you would rather keep the lower monthly payment huh?

    Best of luck, we hope you can still keep on top of your payments. Thanks again for commenting,

    Tim

  14. Connie Says: December 23rd, 2009 at 7:19 pm

    Chase is not a credit card anyone should want or have…I just paid off my balance – and paid it before it was due – and they sent me a final bill for $1.50 – if you do not have chase – do not go with them, use someone reputable!!!

  15. lisa Says: September 17th, 2010 at 11:14 am

    My story…chase closed my credit card last year for NO reason…I was NEVER late on one payment,and always paid more than min payment…still had $5000 available credit…so that ruined my credit…then…I mailed a 500$ payment on aug 2nd(min payment due was 250$ and due date was aug 12)the payment didnt clear my account,so I called when I realized this which was aug 13(a day past due date)told me a late fee had been applied and nothing they could do!I made a 1000$ payment over the phone and expressed my concern over the missing payment,and why was i being punished,when i mailed in plenty of time…NOTHING THEY COULD DO!!Low and behold four days later the check cleared my acc…I called again,NOTHING THEY COULD DO!!The payment had to be clearly postmarked when mailed…they got a double payment out of me plus a HUGE late fee…and since that have tacked on 150$ interest!!!Is this LEGAL????

  16. Tim Manni Says: September 21st, 2010 at 8:57 am

    Lisa,

    I have no idea, but it sounds like poor customer service at the very least. Try checking in with http://www.cardratings.com for more info.

    Thanks for commenting, sorry we can’t be more of a help,
    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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