the coming credit card crisis

[vajraroshana]

I may have missed earlier stories about this. Are any of your friends talking about it? If I'm reading the stories correctly, minimum payments are going to double.

*******

story:
Most credit card bills about to double

If you carry a big credit-card debt, you may have seen something scary in a recent monthly statement -- or you may see it sometime soon: a big increase in the minimum payment required.

Many cardholders' minimum payments are doubling.

The cause is a requirement enacted in 2003 by several federal agencies that oversee financial institutions, including the Federal Reserve and Office of the Comptroller of the Currency. Many credit-card issuers are rushing to comply before bank examiners begin looking for improved practices early next year.

Previously, many issuers competing for customers had such low monthly payment requirements that a customer paying only the minimum might take 30 or 40 years to pay off a card debt, racking up enormous interest charges along the way.

more:
http://www.charlotte.com/mld/charlotte/business/12215199.htm

**********

I know a few people who are going to have a hard time with this. I haven't heard much about it though. Is it overhyped? Or is it going to be as bad as I'm thinking for some folks?

[FloridaPat]

1. Another credit card company plus. Afriend of mine had a Citicorp

card and was making the min. payments. They informed her that they didn't like how much we was in debt in general, so they raised the interest rate from 25% to 30%. Now she can't make the payments.

So the cc companies double the monthly rate and tons of people are in default and up the interest rate goes to 30%. I wonder how much higher the rates can go?

The story given to the public was to help them pay off the cards faster.

[brainshrub]

2. They must know the shit is about to hit the fan,

so they are reaping what they can.

[The Doctor.]

12. That would not suprise me at all.

The only people that really know what's about to happen are either very well connected, or have made the time and effort the time to figure it out.

For the rest of the sheep who are just trying to get by... this is going to get very, very bad.

[Theres-a]

38. Bingo!

[Terran]

50. Except, if this happens,

it will actually CAUSE the shit to hit the fan. The sucking sound we'll all hear will be every bit of disposable cash in the economy going into credit card company coffers. I would think this will cause a recession at the very least. Consumer confidence will plummet, spending on big ticket items will tank, you name it, this will f*ck the economy royally.

[vajraroshana]

4. but this is something new, I think, and federally mandated

unless I'm reading the stories incorrectly.

This is going to affect everyone who has a credit card. The minimum required payment is going to DOUBLE.

At least that's what I think is going to happen.

I'm trying to find out more about it.

[FloridaPat]

7. I think it's part of the bankruptcy reform screwing. It's not an

automatic double. Just a minimal percentage, which apparently for some is a double.

[barb162]

18. A long time ago the Congress should have fixed a

maximum rate above prime for cc companies. It's crazy to do a 30% rate when interest rates are really near historic lows like they have been the last few years.

[FloridaPat]

44. CC rates are regulated by the states. When Reagan was in office, the

prime went up to somewhere around 20%. The states had rates fixed at 12%. The CC companies screamed and the feds took it over. The act was renewed last December right after the elections. Don't know for how many years. Congress isn't going to "fix" anything. They're the reason the cc companies can do it.

[Kazak]

3. *whew* Paid 'em off...

Suggest you do the same.

[vajraroshana]

8. already did so, even though I was told it was bad for my credit rating

yes, "bad" for your credit rating to actually be all paid off! And I only use mine for stuff like purchases online -- then I pay off the balance completely every month. But somehow this is "bad" for your credit rating.

But, I know plenty of people that have lots of credit cards that they only pay the minimum on. And their minimums are going to double.

I can't believe this is getting such little coverage.

When this hits, some people are going to be really f****d and with the new bankruptcy laws, even more doubly f****d.

[electron_blue]

10. don't believe that b.s.

I've had my credit cards paid off for years/decades. I had my credit rating checked last year by 2 companies and it was rated at the top 95%.

[IndyOp]

45. Yup. Me too.

I actually cancelled the one-and-only card I ever had a few months ago and just got approved for a new mortgage with my 'spotless credit record' and 'top rating'.

[Viva_La_Revolution]

22. what ticks me off.... I spent years paying off my debt

instead of filing bankruptcy, and now I have lousy credit. A coworker's brother just found out that (after filing bankruptcy 2 years ago) he has almost perfect credit. Now he's buying a house.

Pisses me off.

[brainshrub]

24. Amen brother.

Same situation.

But I suspect that your frind does not have as good a credit score as he says.

He's probably buying that house on a variable rate. When the fed is forced to raise the rates again, he's going to lose his house.

[Viva_La_Revolution]

36. or sister, as the case may be...

:P

As for his score - It's right up there at the top according to my co-worker, better than her's, (which is good, but not quite as good as his) and she was a bit ticked about it too.

[Carla in Ca]

30. Do not believe that...it is a lie

An active (open) account with no balance is a good thing. Even if you are not going to use the card again, do not close the account because the longer you have the account, it creates a history on your credit report. Another no-no is having a lot of inquiries. Don't allow your credit to be run until you are ready to make a purchase. A lot of inquiries drag down your credit score.
And, most importantly, if you get into a bit of trouble, never, ever miss a mortgage payment. Lenders will forgive late payments on credit cards, but not mortgages.

[rman]

31. Actually that's true; but a 'bad' rating is bad for CC companies....

and good for you. It's called "fico score".
http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/scores.html

People with debt are the more profitable cc customers, people who pay off monthly payments are not so profitable.

=======

More then 100 million Americans have a credit card debt and use credit cards "to make ends meet". The average US family has 8 credit cards and $8000 debt.
Monthly payments used to be 5% of the debt balance. It was lowered to 2% to make it more attractive for consumers to use a credit card.

source:
PBS Frontline: Secret history of the credit card
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

======

"The House of Representatives approves an overhaul of the nation's bankruptcy laws Wednesday, in a vote of 302 to 126. The bill, which passed in the Senate last month, will make it more difficult to get rid of debts by filing for bankruptcy, forcing tens of thousand of people to work out repayment plans instead.
President Bush is expected to sign the bill, which opponents say will hurt the economically vulnerable."

source:
NPR
Congress Overhauls Bankruptcy Laws
by Brian Naylor
April 14, 2005
http://www.npr.org/templates/story/story.php?storyId=4600645

======

"Within the next month, Bank of America, MBNA and Citigroup will raise minimum monthly payments on their cards from 2 percent of the balance to up to 4 percent, not including interest. Other card issuers are expected to make similar changes by the end of the year."

"On the good side of that, they will get out of debt faster, but on the down side, it's gonna be a squeeze," Greg Burgess, of Compass of Carolina, told WYFF News 4's Tim Waller.

source:
Yahoo News
Minimum Credit Card Payments to double in next few months
Mon Jul 18, 5:47 PM ET
http://news.yahoo.com/news?tmpl=story&cid=401&e=2&u=/wyff/20050718/lo_wyff/2831815

[Gormy Cuss]

48. That was true pre-FICO scoring

Old credit bureau models assumed that if you didn't carry debt, you had no record of managing it, therefore you are not as good a risk as someone in debt but paying minimums on time. The other old standard was that having too large a credit limit would damage your rating (the theory was that someone with a $10,000 limit could max it out anyday, so it was assumed in the model.)

The FICO scoring model actually treats people like you more favorably than people who are in hock and barely keeping up. The FICO model looks at the usage percentage of your available credit.

Paying on time and in full is a good thing. Even the major credit card companies have come to recognize that we 'deadbeats' provide the steady cash flow.

[Enraged_Ape]

49. That's total bologna. Propaganda from the credit industry.

It actually hurts your credit rating to have a lot of unsecured credit. My wife and I are just a few thou away from paying off ALL our unsecured debt, and our credit rating is top-notch.

[The Jacobin]

5. I dunno

I have to tell ya. If you are only paying the minimum on a regular basis -- you have big problems already.

Doubling the minimum payment means that the credit card companies will have a harder time trolling out huge amounts for very long times on people.

I think it will also mean that credit will tighten dramatically for the poor and they will find it much harder to find easy credit.

[MissB]

47. I agree, Jacobin

I realize that some people get into a bad spot and are forced to pay minimums for periods of time (like when someone loses their job). But to just pay the minimums? Not good use of credit.

[The Doctor.]

6. Many people will simply default...

But on the whole, I believe it is a good thing.

Sure, there will be many people who might lose a valuable resource when they are unable to budget for the higher minimums.
I know personally what it is like to simply not have enough money to pay debts for years on end.

But in the long run, I see this as a better thing for consumers.

People who are essentially destitute will default more quickly rather than be strung along for years chasing down interest payments.

Overall balances will be paid off more quickly by those who are not so unfortunate, thus earning the CC company less profit.

My only concern is whether and how much latitude the issuers will have to either increase rates, late charges, or extend their indemnity at the expense of the consumer.

[vajraroshana]

9. I read one company is already prepared for that

I can't remember which one, it was one of the big ones. They're already planning for a $130 million loss from defaults.

Sure, in the long run.

But in the short run. OMG.

I think this is in the many millions of people who aren't going to know what hit them.

[The Doctor.]

14. LOL... Who knows...

Maybe they'll learn to PAY ATTENTION for a change!


:boring: then :spank: then :mad:

[vajraroshana]

11. What is going to happen to those that "default" under new regulations

I'm envisioning some very bad shit for millions of unprepared individuals.

This whole story seems to have slipped under the radar.

Unless, as I said, it's hyped. Maybe it's not going to happen all at once?

[The Doctor.]

16. Neat how this comes on the heels of

The new Bankruptcy Bill.

That's ok though... I'm sure all the poor, ignorant sheeple will ignore the fact that Republicans control the House, the Senate, and the White House and find a way to scream;

IT'S ALL BILL CLINTON'S FAULT!!!

[barb162]

19. It's been in the news for several weeks

not the top story, but it has been there

[Deja Q]

15. Simple: Pay ONE bill late - ANY bill and the CC company finds out, they

will then have an excuse to jack up the % rates.

Oh, the game is over... over for the consumer, that is.

And who cares if you kill yourself? It's just a tax writeoff to them.

[The Doctor.]

20. Yes, this will be interesting.

As the horror stories mount and proliferate, CC issuers will be recognized more as salesmen than as benefactors.

Ideed, this will be a very hard thing for many people. That is why I do not own one single credit card... nor will I ever if I can help it.

When the banks lose their grip on the people they make the most money from, those who are susceptible to late fees and interest rates, they will experience quite a loss in profits.

I imagine some companies might be clever enough to set up their own 'credit counseling' departments to keep people indebted to them. (As if they havent' already?)

All in all, I believe that after 20 years of big business' own machinations finally doing them, we'll begin to develop a much more stable middle class again... but boy is it going to suck in the meanwhile. (see post #2 in this thread)

When I was offered a card, I always used to say; "It is Sauron's Credit Credit card and I WILL NOT TOUCH IT!" - I use to get some very strange looks until after the movies came out.

[Darkhawk32]

51. The new bankruptcy law has forced me to declare bankruptcy

just to prevent a financial calamity in case I lose my job. And in Bush world, that could be at any time.

[proud2BlibKansan]

13. One more reason I am glad

I don't have credit cards.

I also don't have a good credit rating since I have no credit cards. But other than my house and my car, I am not in debt.

And this would kill me - to have to double the amount of my monthly payment. My budget couldn't handle that.

[greenbriar]

17. with no credit card debts

and paying your house and car

your credit is better than you think

[proud2BlibKansan]

23. I didn't get a great rate on my car loan

and the finance company said it was because I didn't have enough credit. They actually advised me to get a couple credit cards.

Hubby and I haven't had credit cards for about 20 years now and the important thing is we have always been able to get a mortgage and a car loan - that's the only credit we care to have. We may have to pay a little higher interest rate, but that beats being in debt up to our eyeballs.

About ten years ago, I was disputing a hospital bill (long story - and it was only $100) and the hospital told me if I didn't pay their bill, my credit would be ruined and I wouldn't be able to get a credit card. I told them BFD, that certainly wouldn't be the end of the world for me.

Last year, we considered refinancing our house and did some shopping. One of the finance people I talked to told me it was not at all uncommon for people with our income to have $100,000 in credit card debt. That still just blows my mind.

[Nia Zuri]

21. This is really tough love

Yes, the credit card companies are rotten. But the fact is no one should be only be paying the minimum, if you are, this new law is really doing you a favor. The credit card companies probably didn't want this law, in the long run they make far more money having you pay only the minimum. My advice to all is to pay off your credit cards as quickly as possible! Easier said than done, I know. Just cut them up or freeze them. Don't use them, but don't necessarily close the accounts. Pay as much as you can on the smallest debt first, then work your way up to the next biggest. You shouldn't necessarily close your accounts because your FICO score is based in part on your payment history, but also how much of your open to buy you are using. If you have a total credit limit of $20,000 but are only using $5,000 (25%) your credit will be higher than someone with the same payment history who is using $15,000 (75%)in other words those who are nearly maxed out will have lower credit ratings because they are riskier. All things being equal, you are better off having some credit cards you never use. Credit cards are a necessary evil & but credit card companies are evil leeches, not much better than loan sharks.

[The Doctor.]

27. "It is Sauron's Credit Card and I WILL NOT TOUCH IT!"

Ok- who let the Banking insider in here?

(just kidding)

Welcome to DU.

[Matariki]

28. FICO score == SUCKER score

i been so much happier once i decided i didn't give a fuck. it's just a way to control people. i've noticed that more and more crap is tied to credit scores that have nothing to do with borrowing money. like car insurance or job applications. i'm not playing.

i'm with the person who said they only have a house & car loan.

[Kazak]

39. I hear ya...

I'm not playing either.

[vajraroshana]

25. Tough love or brutal love; get folks addicted then....

I know at least one family member that has many cards and this is going to be brutal. He doesn't even want to acknowledge it. Sad thing is, he's always paid more than minimum; he just got hooked on so many cards. Some are paid off monthly; the rest are paid more than the minimum already, but not systematically. He's going to have to come up with $500 a month more. And he doesn't know where it's going to come from. That's why he was calling me. I'll try to help if I can, but I'm concerned for him. It's going to hit soon.

I can't help but think that he's not alone by far. There's 10s of millions of people maybe even close to 100 million folks that are in this boat (maybe not quite that many).

I know it might be good in the long run, but so all of a sudden.

Add to that the bankruptcy rules have changed.

People aren't just going to be able to default.

Debtors' prisons? I dunno. Probably not that extreme; that'd be too costly anyway.

But I bet they're going to be a lot of suicides. And you know your benefactors can't collect on a suicide (a trifecta).

Color me cynical, but I don't think this is "for their own good".

We're going to help (okay, it's my brother) him out. We, the rest of our family, have our own debts; but we're going to help him.

Frankly, I see a lot of suicides coming. Maybe I'm being a little hysterical, but I think this is bad.

[SoCalDem]

26. The bankruptcy law has not gone into effect yet. October

is when it takes effect.. Anyone on or near the edge should take advantage of this one last opportunity for a fresh start. Then we can hope that after the CC companies and banks lose tons of money through default, that eventually someone will get congress to get their heads out of their asses long enough to remember just whose "servants' they are.. The CC companies and banks may give them money, but there are more of us..

[vajraroshana]

29. that's what I'm thinking, but in the meantime........

I think this will be a big story.

It's going to take a while (a few more weeks yet) before people know it's happening.

Unless something happens to defer the DOUBLING of minimum payments, we're going to have 10s of millions of people coming to a sudden harsh awakening.

And these are honest people caught in the ordinary credit card loop, that have nevertheless become caught in this sudden drastic doubling.

THIS IS GOING TO BE VERY BIG. VERY VERY VERY BIG.

sorry for the caps, but that's the way I feel.

[OxQQme]

32. Tennessee Ernie sang

I owe my soul to the company store.
Seems more and more like we be living in the companies mines.
Wheel barrow full of cash to buy milk and bread and the gas to get to the store.

[SoCalDem]

35. That's precisely why they are probably "delaying" the doubling

Once the BK law is in force, it will be too late...

You won't see too much of this in the news.. The people with the $$$ (the lobbyists) will see to it that it's a hush-hush thing..

I wouldn't really ind the stricter BK laws, if they were universally applied, but it's only the little guy who will get hurt when it changes.. The bigshots will still have all the protection they need, and then some:(

[fortyfeetunder]

33. Incentive in the beginning

I bet for those carrying balances, it will be an incentive to pay off quick....

[T Town Jake]

34. I hear a lot about this sort of thing...

...but I've never had any sort of trouble with the credit card companies I've dealt with, to be honest. My wife either. Just manage the balances, and pay 'em off when you can.

Of course, I used the tax rebate check for the tax cut I didn't want to pay all of mine off two years ago, I'm ashamed to admit. Would've much rather that money went to either lower the deficit, or shore up Medicare/Social Security (either/or).

[mtnester]

37. Not for us, we pay them off every month, no matter what

and no matter how it hurts. We usually wince a little around Xmas.

We have always done that, and our card companies HATE us for it. They have raised our limits so high we could buy a house cause they are making no money off us...zip...zero...nada

I love it. They suck, and we love screwing them over in the only way we can.

However, I do have sympathy for those in financial straights who have been using them to keep themselves solvent...especially those who have not been paying attention to what is coming for them, especially now that bankruptcy is so not an option for most of them (thanks Congress)

[Nye Bevan]

40. The card companies don't hate you

They still make 2-3% or so in commission on all of your charges, even if you pay the bill in full each month. That's why they keep raising your limit-- they hope that you will charge more so they get more commission.

Anyone who only pays the minimum each month is being royally screwed. I am sympathetic to people who are in these straits because of medical and other emergencies. However, I think most people in this situation just cannot resist spending money on things like big TVs and vacations.

[mtnester]

41. I understand they get their commission from the charges we make

from the merchant...we just do not give them ANOTHER DIME.

It actually pisses me off when they raise the limit without our permission. I mean, any uncharged credit is a POTENTIAL debt when you apply for other types of credit. Last time we received a letter saying they were raising our cards limits, we contacted them and told them no, not now or again without our written permission. I mean, we are just regular folk, we would NEVER charge that much unless we hit the lotto, and then everything will be moot (notice my wishful/positive thinking on the tense of the verb)

[Nye Bevan]

42. It helps your credit rating when they raise your limit

*provided* that you have the discipline not to increase your spending (and it sounds like you do). One factor in your credit rating is the percentage of available credit that you are utilizing. The higher your (unutilized) credit limit, the lower this percentage is, and the better your credit rating becomes.

[mtnester]

43. Thanks, I always assumed it worked against us n/t

[anarch]

46. like I've said before: good thing I've learned to get by without eating!

Now if I can figure out how to live on the streets while still keeping my job, I should be able to make my credit card payments! God bless America, the land of opportunity!