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10/10/2005 Archived Entry: "October credit card surprise?"
OVER THE LAST FEW MONTHS both blogoneur Silver and I have reported on the coming "October surprise" -- the day when minimum credit card payments are supposed to double from 2 to 4 percent. Clear back last spring I was baffled that nobody was treating this as news, especially in an economy about to collapse under debt. Only a handful of financial writers were talking about it.
As the date approaches and the media remain mum, I've questioned whether this doubling is actually going to happen. The infamous bankruptcy law, which many writers said mandated the increase, doesn't appear to contain any such provision. In fact, the language in Title XIII clearly implies that some payments will remain below 4 percent. (Read this thing and notice how pathetically the fedgov is micromanaging the banking and credit industries.)
Yet plenty of usually reliable financial writers have stated that the doubling is coming. One throws some light on the confusion, explaining:
What happened was the Office of the Comptroller of the Currency (OCC) became concerned about credit card balances that were growing, while consumers were paying down their debt with minimum payments. The net result of this behavior is that credit card debt would continue top spiral upward while credit cards would take years, decades or never to be paid back. The OCC along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and Office of Thrift Supervision proposed that by the end of 2005, credit card companies put in place a 7-10-year payback periods for reducing or eliminating credit card balances.
Steve Bucci, "The Debt Advisor" at Bankrate.com, says not to expect a fixed doubling of the minumum, but a 10-year amortization period. (Hm. I'll let him and the above-linked source work out why they're both using some of the exact same language.)
I'm still looking into this and have asked the busy, globe-hopping Silver if he can, as well. It seems simply too strange that shortly before this potential financial crackup is supposed to happen, the mainstream media still hasn't noticed. Only ABC's Mellody Hobson seems interested, but she's got a pretty good take on it.
The long-term effect of higher payments would be positive, of course. It would force some fiscal reality on "party now, pay never" Americans. But the change is nevertheless going to come with quite a smack.
Finance and economics are not my areas of expertise. Nor am I expert at researching laws and regulations (gag me with a federal statute!). But I'll keep poking around and will get back to you if I learn anything that changes the above picture.
Posted by Claire @ 09:04 AM CST