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Jun 26, 2009

Chase Credit Cards Increases Minimum Payment from 2% to 5%

by J. Robert Burgoyne — last modified Jun 27, 2009 01:15 PM

A recent Chase Credit Card mailing informs the reader that Chase is more than doubling the minimum monthly payment on credit card balances, from 2% to 5%, effective August, 2009. This will create hardship for many Chase customers who are unable to come up with additional money to make the higher payments. Chase's notice is dated June, 2009 and is labeled "ADV5679".


This is not a defensive move by Chase done out of need.

Chase is well capitalized.

So, why do this now?

Doesn't JP Morgan Chase & Company have a good deal as a national banking institution? Let's see:

  1. Deemed too large to fail, Chase received (and repaid) $25 billion in TARP money from the Federal Government. The change in minimum monthly payments was announced after repayment of the TARP money.
  2. Chase received and continues to enjoy being able to offer enhanced FDIC guarantees on bank deposits made by their customers.
  3. Chase enjoys essentially unlimited borrowing privileges, at interest rates of 0.25% or less, a benefit unavailable to you or me or any industrial business in the United States.

The above benefits increase the value of Chase's banking franchise. And the benefits are only possible due to tax revenue and a regulatory structure whose costs are borne by taxpayers.

The USA and the rest of the world are in recession. Many people are out of work and money is more scarce than when credit card minimum payments were 2%. Credit card minimum payments have been low for as long as I can remember.

This is a strong, giant industry. Read more info on the credit card industry and how large it is.

So, is this a good time for a National bank to pull in money from its customers, when our country's national bank, the Federal Reserve, is making money available to Chase in unlimited amounts at interest rates of 0.25% or less?

I called Chase on June 24, 2009 and asked them, why do this now?

The agent's response was that it was intended to make new borrowers become more responsible about borrowing. OK, fine, good idea.

But what about all those people with big outstanding balances? Read the comments of a few of them. Those people are going down, down, into bankruptcy, and maybe worse.

The Obama Administration recently encouraged Congress to pass legislation to improve the rights of credit card customers. The legislation, the "Credit CARD Act of 2009" was passed over strident objections. Consumers Union, the non-profit publisher of Consumer Reports, deemed the legislation "Victory", and by reading their summary, you will see that it's mostly favorable for consumers. Favorable for consumers likely means "mostly unfavorable" for credit card issuers.

So perhaps in raising monthly minimum payments Chase is sincere in merely wanting new borrowers to be more responsible.

Or, may I suggest a counter-idea:

Marginal borrowers won't be able to pay 2.5 times as much as they're paying now, pushing these people into default, enabling the credit card companies to quickly raise the borrower's interest rate.

Other borrowers have low interest rates on their outstanding balances, due to "teaser" offers from the credit card companies that encouraged borrowing at attractive interest rates.

These borrowers faithfully make their minimum monthly payments, stretching out the repayment term as long as possible - making for a not-so-profitable customer for Chase. Who knows, maybe with the increased monthly payments some of these borrowers won't be able to afford the increased payment, their low teaser rate will vanish, and the borrower will be thrust into a high interest rate due to late or missed payments.

I posit that Chase already has calculations and estimates of exactly how many of these borrowers will be forced into default, and that Chase has already run a full profit and loss simulation of what will happen.

This is the United States of America. If you want to know why this country is compounding itself at a negative rate, pushing itself further and further into the abyss, it's hard to think of a better example than letting national banks, subject to Federal Regulation, and receiving abundant benefits available to no other sector of the U.S. economy, unilaterally take actions that will push potentially millions of new people into financial ruin.

Write to the authorities if this bothers you or to state your thoughts. Per Chase's mailing, which doesn't contain a copyright notice, the relevant Federal Regulatory Entity to write to is:

Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, TX  77010-9050

The address to send written correspondence to Chase Credit Cards is:

Cardmember Service
PO Box 15098
Wilmington, DE  19850-5098

Or you can write to Chase's CEO:

Jamie Dimon, CEO
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017