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1 1 (April 4, 2008)

handle is hein.crs/crsajdi0001 and id is 1 raw text is: Order Code RS22352 Updated April 4, 2008 Credit Card Minimum Payments Pauline Smale Economic Analyst Government and Finance Division Summary 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 as they raise the cost by extending the time it takes to pay off the credit. 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. In response, 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, 119 Stat.23) requires the placement of a standardized minimum payment warning on every periodic statement. Several bills have been introduced in the 110' Congress that would enhance the disclosure to cardholders regarding minimum payments. This report provides an overview of the issues and congressional action. It will be updated as events warrant. Background Although there is no absolute industry standard for credit card minimum payments, they are a ubiquitous requirement of revolving credit card' programs. The formulas used to calculate the monthly minimum payment can vary by issuer and type of account, but typically the payment is calculated as a percentage of the outstanding balance.2 The 1 As opposed to charge cards which require the full balance to be paid each month. 2 Some issuers may calculate the minimum payment as a percentage of the outstanding balance plus any finance charges, late fees, or other fees, issuers may use a flat fee, and others may use (continued...)

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