May 11, 2005
Major credit card lenders are beginning to raise the minimum monthly payment on outstanding balances from 2 to 4 percent. In general, that's a good thing, since it means consumers have a better chance of paying off their debts over time. But for some, the change could be disastrous.
MBNA, Citibank and Bank of America are the first to raise the minimum monthly payment and other lenders are likely to follow.
Many consumers have gotten into the habit of paying the minimum each month. In today's high-interest environment, that means they have virtually no chance of ever paying off the debt, since interest charges pile up faster than the monthly payments.
But for those who are in financial turmoil already, the increased charged could push them into default.
Regulators with the Office of the Comptroller of the Currency have been pressuring banks to clean up their credit card practices. Also, the new bankruptcy law requires that banks post a warning on their monthly statements, telling consumers how long it will take them to pay down their debt if they make only the minimum monthly payment.
