Letter from CC Re: Change in Minimums

[aa06a47]

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

[SinkingFast]

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

[no_it_all]

<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.

[no_it_all]

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........

[SinkingFast]

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??!!

[no_it_all]

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...

[SinkingFast]

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??!!

[FoolAndHisMoney]

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.

[no_it_all]

<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...

[SinkingFast]

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/Require...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.

[no_it_all]

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...

[aa06a47]

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.

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.

[SinkingFast]

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.

[SinkingFast]

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.

[krobin02]

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.