Credit Card Minimum Payments

Publication Date: December 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

Revolving credit cards generally require a minimum payment for each statement period. The creditor uses a fixed percentage or formula to calculate each month's minimum dollar amount. Low minimum payment requirements have been challenged by consumer advocates as a contributing factor to the mounting credit card debt held by U.S. households and the potential financial problems experienced as a result of that debt. Guidelines on credit card lending, issued in January 2003 by four federal regulators of depository financial institutions, were critical of the general easing of minimum payment requirements by credit card issuers. The guidelines, issued because of safety and soundness concerns, communicated expectations of more prudent practices. Recently, credit card issuers began adjusting their minimum payment formulas, raising the amount of the required monthly payment. Congress has focused on the need to increase consumer awareness of the financial jeopardy that can result from paying only the required minimum. The Bankruptcy Act of 2005 (P.L. 109-8) requires the placement of a standardized minimum payment warning on every periodic statement. Several other bills have been introduced that would enhance the disclosure to card- holders regarding the consequences of just paying the minimum.

This report provides an overview of the issues and congressional action. It will be updated as events warrant.