A
recent segment by CNBC's Bill Griffith on
increasing minimum credit card payments
contained some interesting viewpoints. In case you're not aware, minimum payments
by various card issuers have started rising, in some cases even doubling, thanks
to a mandate set forth by the Office of the Comptroller of the Currency (OCC). The
segment featured opposing viewpoints from Michael McAuliffe, President
of Family Credit
Counseling Service, and Dr. Robert Manning, author
of Credit
Card Nation and Professor of Finance at
Rochester Institute of Technology.
Mr. McAuliffe is generally supportive of increased minimum card payments from a
consumer standpoint. He cites the fact that minimum payments will help consumers
pay off their card debt in a more timely fashion and in turn lower credit card finance
charges.
Dr. Manning, however,
opposes the increase and suggests that credit card debt is largely caused by the
aggressive lending practices of financial institutions. He claims that aggressive
lending practices by card issuers has resulted in consumers being overextended and
that now the OCC is trying to correct such lending problems by burdening consumers
with higher minimum payments.
Dr. Manning offers some points to substantiate his claim. He cites the fact that
creditors have had 4 years of exceptionally low interest charged to them (by the
Feds), yet this lower interest has never been passed on to consumers. There
have been 7 years of exceptional profitability for the credit card industry, yet
consumers are burdened beyond precedent.
I spoke on the phone with Dr. Manning concerning this interview and asked him if
there were other issues that have contributed to 7 years of profitability besides
the lower interest charged to the creditor. Professor Manning was very direct in
"Besides not passing on their lowered
interest borrowing power of the last 4 years, credit card fees have increased while
processing administration costs are down. Marketing costs are the only administration
cost which has increased and only because of the increase in cross marketing for
insurance sales. These other areas have additionally boosted profits. Similarly,
fraud expenditure has gone down and some of the fraud costs are even passed on to
the consumer. Yet none of these savings have been passed on to the consumer!"
Dr. Manning continued,
"If the consumer is burdened with
exceptional credit card payments, why can't the industry reduce his interest rate
and thereby reduce his payment [instead of increasing minimum payments]."
Michael McAuliffe suggested that interest reduction was the purpose
of a
Debt Management Program (DMP). Dr Manning
had strong opposing views on this issue as well. He agreed that a
fair share concept was pretty much a
thing of the past but suggested that creditor rates as stated by Accelerated Debt
Consolidation's
minimum required monthly payments chart were only optimal and subject
to the relationship between the creditor and credit counselor.
I followed-up on this issue with the creator of the above chart, CEO
Jim Young,
who has been providing credit counseling services for over 7 years. According to
Mr. Young,
"The only major difference from one counseling
agency to another is not the rate that can be accepted, but the customer service
and satisfaction provided by the agency. Rates that the creditors give to the clients
are all the same no matter which credit counseling firm the consumer uses. For example,
if a client owes Chase $10,000 and we send a proposal for $199, it will be denied
because it is $1 short of the required amount [per the referenced chart]. When we
resubmit the proposal for $200 it will be accepted. It is that simple".
It would seem controversy among experts on these issues will continue. But one thing
all seem to agree upon is that consumers are clearly overburdened with debt, yet
credit card profits have continued to surge. Only time will tell whether or not
increased minimum payments will actually help...
By
Mike Killian,
CardRatings.com Credit/Debt Management Reporter