Some credit card holders who regularly make just the minimum payment on their monthly balances could soon be paying more.
Rules handed down in 2003 from the Federal Financial Institutions Examination Council require minimum payments on bank credit cards to reflect interest, monthly fees and some of the outstanding debt.
Major creditors that this applies to are just now starting to raise their minimum monthly payments.
Minimum requirements for some cards have been so low that consumers who pay only that amount may not be eliminating any of their debt. If amounts don't cover more than the interest, consumers could end up seeing their balances grow.
The regulations apply only to bank credit cards. Consumers who use independent companies may still not be lowering their debt with the minimum payment, said Kevin Mukri, spokesperson for the Office of the Comptroller of the Currency.
His office is part of the Federal Financial Institutions Examination Council, which networks many of the country's bank regulatory agencies. His office charters, regulates and supervises all national banks.
When and how the rules will be implemented depend on which company consumers deal with, Mukri said.
Some companies were already charging sufficient minimum payments before the council enacted new rules, he said.
Others had larger adjustments to make. And those banks are at various stages of implementing the higher requirements.
"Banks are well capitalized. They have lots to lend," Mukri said. "But regulators have to make sure it's done in a safe and sound manner."
The minimum requirements are expected to start creeping up this summer and continue through the next 12 months, said Trish Lynch, financial specialist for ClearPoint Financial Solutions--a Richmond-based credit counseling company that has a local office on Princess Anne Street in downtown Fredericksburg.
Some of the major credit carriers that plan to raise their payments include Bank of America, MBNA and Citibank, according to bankrate.com. Cardholders with those companies will soon pay 4 percent of their balance, rather than 2 percent.
Such increases are both good and bad news for consumers, financial experts say.
Lynch said 35 million Americans make just the minimum monthly payment on their cards.
The average person carries a credit balance of more than $8,000, according to the Motley Fool's personal finance Web site.
Ken Priore, chief operating officer for California-based New Leaf Debt Settlement--which helps people nationwide with debt management--said that kind of debt can take up to 40 years to eliminate by paying just the minimum payment.
While higher minimum payments may mean consumers have to fork out more cash each month, those who previously had lower requirements may get rid of their debt faster.
"Especially with young families. Their debt ratio is so high that a change in any payment will adversely affect them," said Carneal Gregory, owner of OneAmerica Financial Partners in Central Park. "At the same time, a low minimum payment doesn't get a card paid off very quickly."
Priore said he has seen people with minimum payments as high as $1,100.
He said he is worried about the people who are close to the max on their credit cards and may now have to double what they are already paying.
"Where are they going to come up with the additional money?" he asked.
Mukri said banks that had to make adjustments to minimum credit payments were granted additional time to warn consumers and set up the new policies.
"The reason we allowed individual banks to come back to the regulators to discuss an implementation plan is that we acknowledged that [raising the minimum payment] could affect some consumers," he said.
Higher minimum payments at major credit carriers are coming just in time for the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which takes effect in October. The law makes it more difficult for debt-ridden consumers to declare Chapter 7 bankruptcy.
Consumers who struggle with the minimum payment can talk to their creditor's hardship department to see a credit counselor, Lynch said. But the worst option is pretending that the debts don't exist.
"People who haven't looked at their debt situation might want to do so sooner rather than later," Priore said.
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