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GARRY MITCHELL
Associated Press
MOBILE, Ala. - Consumers struggling with higher gasoline prices may soon experience another strain on their budgets: higher minimum payments on credit card debt.
Banking regulators have issued new guidance on repaying credit card debt that includes increasing minimum payments. The guidance says the minimum payment should cover interest, fees and a reasonable amount of principal, said Dean Debuck, a spokesman for the government's Comptroller of the Currency.
Banks are expected to implement the change by the start of 2006, Debuck said.
He said "reasonable amount of principal is equal to one percent of the outstanding balance."
"What this does mean is the minimum payment will actually reduce their debt, which wasn't necessarily the case before," Debuck said.
Minimum payments have been so low that people had little chance of getting out of debt, said Roger Knauff of Montgomery, director of the nonprofit Consumer Credit Counseling Service of Alabama, who describes interest rates as a "debt trap." For those with many credit cards in one family, he said, increasing the minimum can create a burden.
"We're going to see people in trouble," Knauff predicted in a telephone interview Friday.
For new accounts, he said, it's "a good thing."
He cautioned people applying for credit cards to find out what the minimum payment is because, he said, often it's not on the application.
Marion Rutland, 70, of Chunchula, said he struggles to pay credit card debt - some with 24 percent interest.
"We have ups and downs," he said Friday.
Rutland, who recently took a part-time job two days a week to help make payments, said high gasoline prices haven't helped. "We live out in the country and need gas to go." He said he had three gasoline credit cards that he paid off monthly until sickness caused him to get behind.
Rutland said he's concerned about any increase in minimum payments.
An American Bankers Association-commissioned study of 1000 consumers, conducted July 23-24 by Ipsos Reid, examined consumer banking habits and opinions. Released Tuesday, the survey found that rising credit card minimum payments will not create a hardship for the vast majority of cardholders.
Forty-two percent pay off their credit card balances in full each month, according to the survey. While one-third of consumers carry a balance on their credit cards, they pay more than the minimum amount. Six percent of customers on occasion make minimum payments. And just 4 percent pay only the minimum due each month.
Knauff said he finds that 4 percent figure "hard to believe," based on the people seeking debt counseling.
Another debt indicator is bankruptcy. Total bankruptcy filings in Alabama have risen from 9,695 in 2001 to 10,965 in the first quarter of this year, according to the American Bankruptcy Institute.
A new federal bankruptcy law goes into effect in October. Bankruptcy administrators in Alabama have yet to announce how it will change credit counseling, Knauff said.
As for credit card debt, the ABI pointed to data that shows U.S. credit-card delinquencies nationwide have dipped to their lowest level since 1995 as Americans moved to pay down their debt. The latest data on the $400 billion of U.S. credit-card receivables showed that the proportion of cardholder balances that were more than 30 days late fell to a level not seen in 10 years, according to Moody's.
The delinquency rate fell to 4.07 percent in April, down from 4.52 percent a year ago.
Consumer protection director Ed Mierzwinski at the U.S. Public Interest Research Group in Washington, D.C. said consumer groups for years have generally supported increased minimum payments on credit cards debt.
"I'm concerned banks have found religion because of pressure from regulators and are doing it too quickly. Too many consumers are at or near their credit limits," Mierzwinski said. If the bank doubles the minimum payment, those cardholders will be hit.
"Heck, their boss didn't double their salary," he said.
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