Thanks to the Credit CARD Act, if your issuer makes a major change in the terms on your account, such as raising your interest rate, you’ll have the opportunity to opt out and pay off the card at the old terms. (I’ve described how this works in a series of blog posts this week.)
You will not have to pay your balance off immediately if you decide to opt out. However, your card issuer will be permitted to change your minimum payment. Your card issuer can choose use a method that is no less beneficial to you, the consumer, than these two methods:
- An amortization period of not less than five years; and
- A required minimum periodic payment that includes a percentage of the balance that is not more than twice the prior percentage
In other words, they can’t force you to pay off the card in less than five years or require a minimum payment that is more than double your current minimum payment. However, if your minimum payment has been extremely low, you could see an increase if you decide to opt out of a change in terms.
Separately, the proposed rules also require your card issuer to give you advance written notice if your minimum payment will increase, but the issuer will not be required to allow you to reject the higher minimum payment.
On the one hand, the Fed has to look at safety and soundness issues. If consumers have credit card debt that stretches out for decades, there is a good chance these consumers will fall into default. On the other hand, many consumers I’ve spoken with who defaulted on their cards did so after their minimum payments rose.
Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.