Credit Card Issuers Getting In Their Licks Ahead Of Reform

As lawmakers worked out credit card reform legislation earlier this year, card issuers argued that tough restrictions would make credit costlier for consumers. Now that tough reform has been signed into law by President Barack Obama, some lenders are making good on those threats.

Kezia Richards of Pennsylvania told the Huffington Post that last week she received a notice from Chase that her minimum monthly payments would be increasing from 2 to 5 percent of her total balance on her two Chase credit cards.

"It came in the mail like junk mail," she said, noting that in the past she usually ignored mail from Chase but had been opening the letters more recently.

"This one made me physically sick when I read it," she said.

Richards, 37, said that she's carrying roughly $35,000 in debt. She said that the more-than-doubling of her minimum payments, starting in August, would mean the amount she'd owe every month would jump from more than $700 to more than $1,700 -- an amount she said she'll have trouble paying. When she called Chase to get an explanation for the hike, she said she was told, "due to the poor economy and the legislation that's been passed, Chase needs to recoup its funds."

Richards said that Chase told her the increase would apply to 850,000 of its cardholders. Chase told the Huffington Post that the changes would apply to less than 1 percent of its approximately 100 million active accounts.

"Chase has recently increased the monthly minimum payment on select accounts that have carried balances. Effective August 2009, impacted cardmembers will have their minimum payment increased from 2% to 5% of the statement balance," said Chase spokeswoman Stephanie Jacobson in a statement. "Tens of millions of Chase customers have taken advantage of our promotional low rate financing over the last five years. Most of these loans have been paid back in less than 24 months. However, there have been a small percentage of customers that have not made as much progress in paying down these loans."

Chase is not the only lender to take action that will raise costs for consumers since Obama signed the reforms into law in May. USAToday reported Monday that Chase and Bank of America are both raising balance transfer fees, and that Capital One and Citibank have raised interest rates. The Financial Times reported Wednesday that Citi is raising rates on millions of its customers in exactly the way the new legislation is supposed to prohibit.

Consumer advocates saw this coming. "Given that the statute was inspired in part by credit card companies changing terms, and that the statute is not yet effective, it is hardly surprising that the companies continue to change their terms," wrote law professor and consumer protection expert Jeff Sovern in an email. "I wonder whether the latest changes can in fact be laid at the statute's feet, or would have happened anyway and are just being blamed on the statute."

The new restrictions will not take effect until next year. Chase's increased minimum payment requirements will not be prohibited by the reforms. Sovern said that while the statute will bar increases in some of the terms governing repayment of outstanding balances, such as arbitrary hikes of interest rates charged on those balances, credit card companies can increase the minimum payment by up to double the original percentage.

For people with large balances on their cards, the minimum payment increase can be particularly difficult.

Jeff and Brenda Dale of Illinois said that they received notice from Chase that both their maximum balance-transfer fee and minimum monthly payments would rise to 5 percent of their roughly $60,000 balance. Brenda Dale said that she recently lost her job as an accounting manager and doubts the couple will be able to afford their new minimum payment amounts, which will jump from around $1,200 to nearly $3,000.

"I was pulling in between $60,000 to $65,000. Now I'm drawing $310 a week from unemployment," said Brenda Dale, who added that she'll be staring bankruptcy in the face if she can't find a job before September. "I can't send the 5 percent. They can't get blood from a turnip."

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