It is the most obvious change to consumers’ credit card statements already visible in current mailings. The “minimum payment warning” table is one of the requirements of the Credit CARD Act taking full effect tomorrow, and it lets you know how much interest you’ll fork over – and how long it will take – if you only make the minimum payment.
It is also just one provision of the credit card reform laws that drew comments from consumer groups on one side and the credit card industry on the other.
Both sides made their points to the Federal Reserve, the rulemaking authority over the Truth in Lending Act and other federal regulations governing credit card practices.
The Fed last month issued its 1,155-page “Final Rule,” explaining the evaluation process for each major provision. The Fed is required to allow public input for each proposal.
More often than not, the Fed stuck to the original proposal – but only after taking into consideration opposing arguments or proposed modifications to a rule. The weighing of arguments for the “minimum payment warning” offers a good example of the process.
Consumer groups wanted to include the warning even for card customers who pay off their balances every month, despite the proposal being tailored primarily for card holders who carry large balances. The warnings remind card holders, for example, that minimum payments can take their toll when an $1,800 balance takes 10 years to pay off at a cost of nearly $3,300 in interest.
The “minimum payment warning” requirement carries an exemption: Card issuers do not have to provide the warning table if a card holder paid off the balance for two consecutive billing cycles.
Consumer advocates argued that those who pay off their balances in full should be reminded of the consequences of carrying a balance, and they can “encourage” their friends and family to avoid the practice of just making the minimum payment.
The Fed wrote in its Final Rule that consumer groups believe this “because these disclosures will inform those consumers of the disadvantages of changing their payment behavior.”
On the other side, the credit industry requested to expand the exemption to any current billing cycle if there is a zero balance, “regardless of whether this condition existed in the previous cycle.” In other words, credit card issuers wanted to reduce “minimum payment warnings” for those customers who zero out their balances.
The Fed decided to leave the proposal intact, with the exemption staying as “two consecutive billing cycles” with a zero balance.
The Fed states that it “believes the two consecutive billing cycle approach strikes an appropriate balance between benefits to consumers of the repayment disclosures, and compliance burdens on issuers in providing the disclosures. Consumers who might benefit from the repayment disclosures would receive them.”
For an overview of the new reform’s provisions: Fed Finalizes ‘Milestone’ Credit Card Reform Rules
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