Credit Card Abuse: Chase Unilaterally More Than Doubles Minimum Payment With No Opt Out

Your mailbox has probably been filling up recently with credit card companies sending you change of terms notices on your credit card accounts.  In the past, most of the gouging took place when your credit score dropped or if you missed a minimum payment, or utilized too much of your available credit.  These days, even those with FICO scores in the high 700s are seeing an end to fixed interest rates, replaced with something far higher, and free to float even higher as the Fed increases its own benchmark rate in the future.

Since the passage of recent legislation to put an end to the most egregious abuses, Congress mucked things up by not imposing the law immediately, and instead gave credit card companies nearly a year for a gouging free-for-all before the new law takes effect.  They’re taking full advantage.

A special place in hell has been reserved for Chase, however, which has pulled out all of the stops and gone shameless like no other credit card company has before.  Using the ethics of Bernie Madoff, some pencil pushers at Chase have decided that smart customers who hopped on board those near-weekly balance transfer offers they used to mail to cardholders, offering a fixed low percentage rate for the “life of the balance” don’t deserve that offer anymore.

Since the bank got slapped for trying to impose a $10 monthly “account maintenance fee,” they’ve decided to opt instead for a more than doubling of the monthly minimum payment, effective August 1st.

In a “change of terms” notice mailed home to hundreds of thousands of Chase cardholders who have a fixed rate balance transfer offer, the company has singled them out with the payment change:

Before:  Your minimum payment consists of 2% of the owing balance on your account plus accrued interest charges and fees.

After: Your minimum payment consists of 5% of the owing balance on your account plus accrued interest charges and fees.

The company has also announced it has canceled all pre-existing balance transfer offers floating around in your mailbox, drawer, or attached to your latest bill.  That’s because it is also changing the terms and conditions on future balance transfer offers.  The days of “life of the balance” transfers are over, so expect to find 7% offers good for six-twelve months maximum being the new standard for creditworthy consumers.  But in addition, Chase will charge you a 5%, the highest in the industry, of whatever balance you do choose to transfer their way, with no maximum, as a “balance transfer fee.”

At first glance, a 3% increase in the minimum payment does not appear to be that great.  But what makes this especially awful on the part of Chase is that their change in terms contains NO opt out provision.  You are trapped, unless you can transfer the remaining balance away (and confront higher interest, another balance transfer fee, and a time-limited offer in the process).  Consumers in this extremely tough economic climate are often budgeting their payment obligations to the penny, and are focusing on paying down debt starting with the highest interest rate, and then moving to the next highest interest rate, and so on.  Chase wants to be first in line, and for consumers who are capably managing to reduce their debt, a near-tripling of the minimum payment will put many people straight into default.

Consumers with a minimum payment of $200 will now have to cough up $500 a month.  It’s not such a small amount after all.

One person told ConsumerAffairs:

“My monthly payment from my four accounts will go from $961.00 a month to $2394.00 a month. Needless to say I will not be able to make these payments and will end up defaulting on my accounts and probably claim bankruptcy.”

In general, increases in minimum payment requirements do reduce debt more quickly, and reduce your exposure to interest charges.  Paying a credit card in full exposes you to no interest charges (yet).

But in the real world, where many consumers do have long-standing debt, the reasons this is particularly egregious:

1. A more than doubling of a minimum payment on hard-pressed consumers will rapidly tip people into default.  An incremental increase in the minimum payment with considerable notice is one thing.  A 30 day notice is not.
2. Should Chase get away with this, it will establish a precedent other card companies will surely follow.  Anyone with revolving balances could easily find themselves underwater with the impact of Hurricane Katrina.
3. Consumers were sold on the idea of the original deal, which Chase now wants to right to unilaterally change for its own benefit.  It’s like a mortgage company coming to you and demanding a doubling of your house payment… just because.
4. One outrageous anti-consumer abuse will lead to others.  How about account inactivity fees?  Interest rates from the date of purchase with no grace period?  Annual fees?

American Express has been reportedly reducing credit lines for customers who are caught using their AmEx cards at the “wrong stores.”  One cardholder found his credit line reduced to the owed balance after shopping at Wal-Mart.  The reason? Customers who routinely shop at those stores are more likely to default on their account than those that don’t, so you’re guilty by association.

Remember, your entire financial state depends on your credit score.  Once you find a credit line reduced or miss a payment, it’s like putting yourself in a barrel over Niagara Falls.  Here’s what routinely happens:

1. Your credit line is reduced to your owing balance on one card, putting your card utilization percentage at near 100%, which reduces your FICO score.
2. Other credit card companies doing routine credit checks discover the red flag of a credit score decline and credit utilization ratio problem.  They also reduce credit lines on your other accounts.
3. Your FICO score now takes a very serious hit as account credit lines decline, which also triggers all of your remaining credit cards to dramatically increase your interest rates because of your increased risk.
4. Your homeowners and auto insurance policies more likely than not are now also price-impacted by your credit score.  Your policy renewal rate can be substantially higher, or canceled outright.
5. Your potential employer pulls a credit report and sees you are “irresponsible” with your credit and therefore may also treat your job the same way.  You are not hired.
6. Your ability to rent or purchase property is seriously affected by a declining credit score.

These days, only one or two minor events in your credit portfolio can trigger a financial avalanche, often before you can maneuver out of the way.  The recent passage of credit card reform will protect against some of the worst industry practices, but not others including their right to reduce your credit line, change your going-forward interest rate, and allow others to access your credit history for non-credit extension purposes.

Chase’s latest is something every consumer should be communicating their extreme displeasure to Congress about.  Even if it doesn’t directly impact you today, allowing any credit card company to get their abusive foot in the door of your family can spell financial disaster for those who are paying their debts, but at the terms and conditions they agreed to when they originated the loans, not the terms the credit card company decided to impose on a whim.