Letter from CC Re: Change in Minimums

We got a letter from one of our CC Creditors today. An interesting offer indeed.

They've noted that our account is overdue.

Duh??!! You think??!! What was the tip off??!! Maybe 5 missed payments??!!

But I digress,.........

Quote from the Letter dated May 4, 2006,

"CC minimum payment requirements are changing. The change may result in an increase for you but you have the option to say "no." If you call to decline the increase, your minimum payment will go back to the old method of calculation. So you can take control of your credit card payment -- to pay more when you can, or pay the lowest possible minimum amount due when that's what you need."

Later in the letter they say they are sending the letter to notify us that it is our "right to decline the change in terms." And again the letter said, "you have the right to say "no" to this increase."

"When you call us we can also suggest other ways to make your payments more affordable. Depending on your circumstances, you may qualify for interest rate reductions, waivers of fees and penalties or even a reduced pay off amount."

Eeenteresting!! Very Eeenteresting!!

We have until June 4th to respond to their offer.

What is with this??!! I thought the new way they calculate payments was required by law. The new method HAD to include 1% of the principal balance plus fees and interest.

We had one CC that went from being an $80/mo payment to nearly $300/mo.

So what's with this "you can say "no" and return to the old payment calculation method." stuff??!!

Wouldn't that be going against the new law??!!

The new minimum is now 4 percent of the unpaid balance. Used to be around 2 percent. Since this is a change in your credit agreement, you do have the right to opt out of it. What does that mean? Often if there is a substantial change in the terms of your original cc agreement you will get a letter asking you if you are willing to go along. If not, you have the right to refuse. You refuse by sending a letter to the credit card company. The result is that the CC company maintains the original terms and the original agreement. Why doesn't eveyone just opt out? Well if you do, you no longer can use the credit card.

Perhaps, the change in minimum payments calculation is having an effect on credit card payments which has not yet been reported.

Could the rate of missed/below minimum credit card payments be climbing significantly this year?

Is this an attempt to stem the tide?

Wish they would send me one of "those letters" and me DISCHARGED.........

LOL - what I could do with that....................

We haven't received a notification from them about change in terms of agreement since the new thing that went into effect the end of last year.

It was supposed to take effect the beginning of January this year, but most of our CC's jumped the payments in Dec '05.

We had CC's that were charging as little as 0.5%-1% of the total balance on the card for monthly payments. Most of our CC's were set up to charge 2% of the balance on the card monthly. We only had one card that the new payments didn't affect. That CC was already charging 5% of the total balance on the card every month.

I thought the deal with that change last winter was the payment had to include at least 1% of the principal balance, plus fees, plus interest. At least that's what the paperwork that we got from the CC's said. Maybe 1% of the principal balance, plus fees, plus interest is equal to about 4%??!!

We've kept all correspondence from the CC's since last fall. If there's been a change in the payment calculations method since January, we haven't been notified.

I just got an offer from Citi today to consoldate credit cards to one new low interest rate. Sorry dudes, I already have 1 fixed payment now!!! :yahoo:

The increased minimum payments are a result of the new bankruptcy laws. The reason for the increase is because the federal government wants credit card companies to make it possible for consumers to pay their debts in a "reasonable" time. The federal governement is pushing for a seven to eleven year payback on credit card debt (it is currently over twenty years!). Also, soon the credit card companies will have to indicate how long it will take you to pay off the balance. Credit card companies really don't want consumers seeing twenty and twenty-five year paybacks. By boosting the minimum payments to four percent, the payback period is reducted greatly and the federal government is satisfied. No mention is made at all regarding the fact that consumers could ALWAYS pay four percent if they wanted to....Now, they just have to!

It is anticipated that these changes will result in billions (yes, with a "b") of credit card charge offs in the next couple of quarters for each of the major players in the credit card game...A change in the calculation of minimum payments is a change in the credit card agreement. That is why the letter asks you if you want to opt out or not. If you opt out, you keep the older minimum payments (and no longer can charge on the card).

"When you call us we can also suggest other ways to make your payments more affordable. Depending on your circumstances, you may qualify for interest rate reductions, waivers of fees and penalties or even a reduced pay off amount."


This part of the statement is a bunch of bonk! I have called when I get these lovely letters from the creditors and they always say that they won't do anything unless I bring my entire account up-to-date. :beee:

I'll make this wager. You might pay off the 4% this month, but I'd bet you would use your credit more the next month because your going to be even more cash poor than when you made 1 or 2% payments.

I think the 4% rule will either make people come to there senses about credit card debt, or just spend more on cards because they don't have the extra cash they use to have anymore!

I'm looking at this from my own perspective, I had no wiggle room. To continue to pay the credit cards would have meant I would have had to continue to use them. Each month, the debt was getting larger.

It is anticipated that these changes will result in billions (yes, with a "b") of credit card charge offs in the next couple of quarters for each of the major players in the credit card game...A change in the calculation of minimum payments is a change in the credit card agreement. That is why the letter asks you if you want to opt out or not. If you opt out, you keep the older minimum payments (and no longer can charge on the card).

Yes, but they will still make Billions...with a "B". They all seemed to make it fine in the 4th quarter of last year, nearly record profits despite the chargeoffs. Fed raises rates 1/4 point, they raise there rates 2, 3, 4 , 10points....they are making a killing.

JP Morgan (Chase) had fourth quarter profits of 2.6 billion or so. They charged off 2.3 billion in bad credit card debt that same quarter...Discover card expects to charge off about a quarter of a billion dollars and Capital One is figuring that about five percent of their total credit card portfolio will be charged off...The federal government suggests that is evidence of consumers being not very credit card savvy....Yes, they still make quite a bit of $$$ though!

JP Morgan (Chase) had fourth quarter profits of 1.6 billion or so. They charged off 2.3 billion in bad credit card debt that same quarter...Discover card expects to charge off about a quarter of a billion dollars and Capital One is figuring that about five percent of their total credit card portfolio will be charged off...The federal government suggests that is evidence of consumers being not very credit card savvy....

Well, I would agree with the Federal Government, but the Federal Government should look in the mirror and tell me how bad my finances are. I understand it would take 80K plus for every family to pay the federal deficit. WOW...and Chase thinks they have problems.

Appears Chase and Capitol One and Discover paid several million dollars lobbying for the new BK law which probably cost them a billion or so in write offs more than it normally would have for that one quarter. Not sure when they report first quarter profits, but should be substantially better. BK rate went down to almost nil the first quarter of the year, though I understand the pace is picking up to pre-bk reform act levels.

The government is such a role model for responsible spending....NOT!

How many trillions of dollars of national debt now? Those little gnomes in the cellar better get to work printing more money.

It is anticipated that these changes will result in billions (yes, with a "b") of credit card charge offs in the next couple of quarters for each of the major players in the credit card game...A change in the calculation of minimum payments is a change in the credit card agreement. That is why the letter asks you if you want to opt out or not. If you opt out, you keep the older minimum payments (and no longer can charge on the card).

I can't use the card now anyway. Due to non payment, the acct is frozen. So that's not the reason behind this offer. Or if it was, then it was a useless attempt.

I think the "let us help you statement" is just so much Bull$hit anyway. If they wanted to help, they woulda done so when I called them months ago, telling them we were having problems, and asked for help. But, NO! No help was offered.

I ran this by Hubby and he thinks,........ 1) that BK levels are picking back up, 2) the CC companies are trying to stem the tide that's coming, 3) they're not generating new CC takers/accts to replace the surge of pre 10/17 BK filers, and/or 4) people in general aren't charging as much as they were causing reduced revenues.

If the CC can entice people into taking this offer, that's money they don't have to worry about being BK'd against. And this offer would work for people that only have the one acct to worry with. But when you have more than a few, one offer like this isn't much help. Why bother??!!

I got the same pages of mumbo jumbo from MBNA, I just threw it in the trash.

Shoot! We're up a creek if we have to return cards!! We've destroyed them all! :beee:

<snip>

Quote from the Letter dated May 4, 2006,

"CC minimum payment requirements are changing. The change may result in an increase for you but you have the option to say "no." If you call to decline the increase, your minimum payment will go back to the old method of calculation. <snip>

Standard language that offers you the option not to accept the terms of your new agreement. Opting out allows you to keep the original agreement and the corresponding lower monthly payment.

All persons who initially or subsequently request, accept, guarantee or use(italics are mine) the account are individually and together responsible for any total outstanding balance. If you and one or more persons are responsible to pay any total outstanding balance, we may refuse to release any of you from liability until all of the cards, access checks, and other credit devices outstanding under the account have been returned to us and you repay us the total outstanding balance owed to us at any time under the terms of this Agreement.

It reads like this:

You requested the card. You accepted the agreement. Your kid is an authorized user. The bills they rack up (as an authorized user) are part and parcel of the entire balance. That is all it means, as evidenced by the part that says "If you and one or more persons are responsible to pay any total outstanding balances..blah, blah, blah" An authorized user is not responsible for PAYING any outstanding balances but is responsible for ACCUMULATING a balance by virtue of their authorized status. Language is a funny thing. What means something in everyday conversations means something entirely different in legal jargon. To be responsible for an outstanding balance is not the same as PAYING for an outstanding balance...Authorized users are responsible for the balance, the card holder is responsible for paying those balances........

Standard language that offers you the option not to accept the terms of your new agreement. Opting out allows you to keep the original agreement and the corresponding lower monthly payment.

If this is all in reference to the changes that took place 6 months ago, they're just a tad late, dontchya think??!! :D

It is really convoluted and goes something like this. First the Feds decided a couple of things...You have to understand banking regulations and the restrictions the Feds have on Banks, especially when it comes to debt ratios and financial accounting. The Fed were thinking two basic things: One, that many banks actually have more bad credit card debts than they claim. How can that be? Most people are making the payments right? Yes, most are, but a LOT of them are making the minimum payments. Those payments are/were artificially low because if the banks actually put the payments where they SHOULD BE (read: at four percent of the balance) many of these "good" accounts would in a few months go bad. Feds thought the banks were in a way "hiding" some bad debt by giving these low payments (as low as one percent)..Banking regulations are very specific when it comes to portfolio debt and the Feds thought some banks were taking advantage of this situation. Second, the Feds thought many people didn't really understand that paying the minimum will keep them in debt for twenty years..So they asked the banks to raise the minimum to four percent and that is what is going on. It really isn't a law, more like a strong suggestion...

I understand all that. What you said about minimums and such.

I never actually paid "the minimum" to any CC.

If the payment required was $85 and we owed 7,139.94, I'd send at least $89.94. If the month was better, I'd send in 139.94. I was always paying more than the minimum required payment. And, yes I knew if I continued to pay that way, it could take 20-30 years to pay the debt in full.

But the "hiding debt" thing I don't get. Lenders are required to hold a %'age of monies in reserve as "insurance" so to speak (can't think of the banking term right now) against monies lent out. To protect against defaults. That's all monies lent out by the Creditor. Mortgages, auto loans, unsecured such as CC's and personal loans. All monies lent out.

Chase, MBNA, Ford Motor Credit, GMAC, etc, they all have a cash reserve set aside to guard against deficiencies. I forget what the actual % is, but it's a relatively large cash reserve set aside. It's to allow for a rather large number of defaults on loans at any given point in time. Like last fall with the rush of BK filings.

So if the Creditors have to hold a default reserve that's a %'age if $$'s lent out, how are they hiding bad debt??!!

Yes, but they will still make Billions...with a "B". They all seemed to make it fine in the 4th quarter of last year, nearly record profits despite the chargeoffs. Fed raises rates 1/4 point, they raise there rates 2, 3, 4 , 10points....they are making a killing.

True but it's early yet. The next down turn with the economy (hopefully not for a while) will give these credit card companies record losses. I pitty the massive layoff victims that will be seen in that industry.:cry:

<snip>
But the "hiding debt" thing I don't get. Lenders are required to hold a %'age of monies in reserve as "insurance" so to speak (can't think of the banking term right now) against monies lent out. To protect against defaults. That's all monies lent out by the Creditor. Mortgages, auto loans, unsecured such as CC's and personal loans. All monies lent out.

No, that is not correct. Banks hold reserves for demand deposits only. Money deposited in a bank is essentially a loan to the bank. It is a debit on the balance sheet for the bank. All monies lent out are actually considered assets.

Reserves are only a few percentage points of the actual demand deposits. Technically, a bank has to have these but if not, they just borrow it at the close of the day from the Federal Reserve (The overnight reserve rate)..

Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and the Office of Thrift Supervision were all involved in the guidelines suggested to the credit card companies. And note that they are guidelines, not law...It struck all of these federal agencies as a good idea to reel in the accounting and other inappropriate practices that were occurring...

OK,............

I knew I did not dream it. I did read that Banks do indeed have Lending Limits and must maintain a reserve on hand to meet demand in case of default on credit extended.

If you think about it, it only makes sense. What happened in 1929?? The stock market crashed and there was a run on the banks. Now, when the Stock Market drops significanly, the computer kicks in and ceases trading. It would only make sense for Banks to have a default mechanism in place as well.

I know this isn't the greatest source, because I could not sift thru the Legaleeze at the FDIC, the OCC, and the Federal Reserve and pull a quote to reference. But I actually did read this elsewhere.

You'll see here that the Required Reserve Ratio is 10% for USA Banks.

http://en.wikipedia.org/wiki/Required_reserve_ratio#Reserve_ratios

And this page defines Capital Requirement and shows a year end financial statement from Citigroup for FY 2003. The Tier 2 Capital Allowance for Credit Losses is approximately 10% of Tier 1 Capital of Common Stockholders Equity.

http://en.wikipedia.org/wiki/Capital_requirements

I know it's not as straightforward as 10% of Tier 1 is the Required Reserve Ratio a Bank must maintain on hand. There was a rather complicated discussion at both the FDIC and OCC websites regarding Tier 1 and Tier 2 Capital and total debts outstanding.

Because some debts are secured with property or real estate interests. Some debts are issued to businesses and therefore secured by the assets of the business which may be subject to change. Some debts are secured with paper being issued by the borrower. Some debts are secured by agricultural or warehouse inventories which maybe subject to change and/or loss. And some debts, such as CC's, are totally unsecured.

Whether or not Banks borrow funds over night to meet debt obligations or not on a regular basis, I don't know.

Just a heads up...Wikipedia is not a source I would necessarily trust..I try to stick to domains with .gov in their name..I would go to Wikipedia for the simple English translation and then try and reconcile that with the gobbley gook the lawyers splew out at the dot gov sites...

True but it's early yet. The next down turn with the economy (hopefully not for a while) will give these credit card companies record losses. I pitty the massive layoff victims that will be seen in that industry.:cry:

I'm afraid the next down turn in the economy has already started. Friday, data indicated consumers were not "happy" so to speak, and more money was going to buy fuel and less for shopping at the mall. All this while the fed just keeps raising interest rates. Housing gets too expensive, people laid off...... Remember the Gerald Ford / Jimmy Carter years (some on this board probably due). Stagflation...that's what I see starting to happen right now. Difference now is we are in a world economy. Problem between then and now, we are not looked on highly in America as producing quality goods. Manufactuing will not pull us out of this one.

Just a heads up...Wikipedia is not a source I would necessarily trust..I try to stick to domains with .gov in their name..I would go to Wikipedia for the simple English translation and then try and reconcile that with the gobbley gook the lawyers splew out at the dot gov sites...

I believe I said the same thing myself in prefacing reference to the links.

That much of the same info was at the FDIC, OCC, and Federal Reserve websites, but the legaleeze was too difficult to pull a quote from.

If I remember correctly, I first read about the reserve of funds at CreditWeb.com, but can't remember for sure.

Wikipedia just distilled it all down in a simple, easy to read format.

I'm afraid the next down turn in the economy has already started. Friday, data indicated consumers were not "happy" so to speak, and more money was going to buy fuel and less for shopping at the mall. All this while the fed just keeps raising interest rates. Housing gets too expensive, people laid off...... Remember the Gerald Ford / Jimmy Carter years (some on this board probably due). Stagflation...that's what I see starting to happen right now. Difference now is we are in a world economy. Problem between then and now, we are not looked on highly in America as producing quality goods. Manufactuing will not pull us out of this one.

I remember those days!

We were Yuppies. Young, dual income couples, us and our friends. Successfully employed at relatively high paying jobs. Stop for drinks on the way home from work. Party on the weekends. Lavish vacations. Drove new cars. Even custom ordered a truck from the dealership during that time period. Had CC's but carried relatively little debt. Not a care in the world. Having the time of our lives.

Then some couples started to "settle down". Decided to buy homes and start families. A couple we knew, I worked with the guy, bought thier first home spring of 1984 maybe??, and they got a low, low interest rate of 12, that's TWELVE, percent. Average going rate those days was between 13% and 14%. They'd saved up a 20% downpayment and had enough money to buy down the interest rate a full point or so. Wife got pregnant and all was well with the world. For a few months.

Then Corporate downsizing began. My company was one of the first in the field, I think. Within 6 months of this guy buying his house, our employer announced they were closing our facility, moving our operations to New York, and if we didn't wanna move, we'd be laid off. One of the sweetest, nicest guys you'd ever wanna know became a real sour puss with a very short temper.

This poor young guy had the weight of the world on his shoulders. Baby on the way, house he could not sell, a job with a salary he couldn't replace locally, and he and his wife did not wanna move to NY. Months later, in the nick of time, he "interviewed" for an Engineering position at one of the Company's other locations and was "hired". He got the Corporate relo package which included a Buy-Out for his house and he was able to keep his years of service and vacation earned. He and his wife were greatly relieved.

Hubby wanted to change positions, so I took a hiatus from work and went back to school. I did the unemployment job hunt thing because I was required to. I remember interviewing with one company, and the hiring manager said to my face, "You know we cannot match the salary you're used to making. I'm afraid you won't be happy with what we can afford to pay." I told the guy what he was offering beat unemployment. But they decided to go with a green horn, straight outa college instead. No salary expectations to meet. The kid was happy to be employed. Didn't matter that they'd have to invest a chunk of time training the kid where I could hit the ground running on projects that were already in progress.

The unemployed group got together every couple of weeks for breakfast or lunch. We'd catch up, trade contacts for jobs, that kind of thing. I knew if that one hiring manager made that comment to my face, other hiring managers were thinking the same thing about people who were seriously looking for jobs. Many of the people I knew that were laid off said they were having the same experience. Almost all of them wound up taking jobs for much lower pay when they finally got one in the same field. Others were forced to change careers to get new employment.

Hubby did change jobs, we moved, and I started the job hunt again. It took about a year for me to find another, comparable postion at HALF the pay I'd made before.

The '80's was definitely a Riches to Rags decade.

I never heard of this change in the minimum payment law. Anyhow, First National Bank of Omaha was WAAAAAYYYYY ahead of the ball game. In April 05 my min pmt due was $78. The very next month (May 05) it jumped to $180. That's when I quit paying it. And never did I get a letter stating anything about rate changed, payment calculation changes, or any other topic for that matter. That burned me.

I remember when mortgage rates were 18%. Couldn't buy, couldn't sell a home. It was a mess. Ronald Reagan was president when it all started improving. We need a technology push, kinda like Reagan had with his star wars push. Like Kennedy did with the space program....we just need something that will advance our country's technology and spark a new economic expansion around it.

Maybe that is a push for a hyrdogen fuel. We are spending all our country's money on a war in Iraq. How about let's spend it here, so we quit buying there oil and financing there terroists.

Everybody can say what they want about Reagan and his star wars program, those who have enjoyed the benifits of laser surgury and I cannot even start to list all the things we use for granted today that are using items from that technology.