Dear Credit Card Adviser,
I’ve watched the development of new credit card laws and regulations with interest, and I’m wondering … I know lenders can’t change interest rates on short notice, but can they still change minimum payments? For example, could they put the squeeze on a customer by suddenly decreeing that the minimum payment will be much higher than it has been?

This won’t affect me because I don’t carry a balance. And, in a saner world, we would assume that a lender would have no motive to treat a customer badly. But we have now learned that lenders are irrational. Sharply raising a minimum payment could be a tactic to deliberately push a customer into default and collect penalty fees. Thanks.
— Michael

Dear Michael,
I have good news and bad news for you. I’ll give you the good news first.

In July, the Federal Reserve Board issued an interim final rule that took effect on Aug. 20. The rule amended parts of Regulation Z, which implements the Truth in Lending Act, to enact certain provisions in the Credit Card Accountability, Responsibility and Disclosure Act of 2009. One of the revisions applies to minimum payment hikes.

“The general rule of thumb is 45 days’ advance notice before the effective date of an increase to the required minimum periodic payment,” says David Thompson, a consumer finance attorney with McGlinchey Stafford PLLC in Cleveland.

Time for the bad news. While consumers will enjoy 45 days’ advance notice before a change to their minimum payment due, “the opt-out right does not apply,” writes Chi Chi Wu, a staff attorney for the National Consumer Law Center in Boston. She says the provision in the CARD Act that prevents issuers from hiking the minimum payment to no more than twice the previous percentage only applies if the consumer opts out of the change, which cancels the account. Issuers don’t have to give consumers an opportunity to reject the proposed increase.

“Thus, for a change in the minimum payment, the consumer gets 45 days’ notice but no ability to opt out, and the increase is not subject to the limitations of the CARD Act in terms of minimum payment increases,” says Wu. “A bit of a Catch-22 there.”

To answer your question: An increase won’t be “sudden,” but also isn’t subject to a cap, either. Consumers who can’t afford the minimum payment spike should shop around for a new card or pay down their existing balance.

Thanks for asking.

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