Late payments drop after credit reforms

[NNN0LHI]

http://www.chicagobreakingbusiness.com/2010/05/late-payments-drop-after-credit-reforms.html

Published on May 17, 2010 6:21 AM | Submit a comment
Associated Press | Consumers struggling to pay their bills in the first few months of the year got an immediate benefit from credit card reforms. Late credit card payments fell sharply in the first quarter, and at least part of the drop can be attributed to the law that kicked in Feb. 22 curbing interest rate hikes and various fees.

The rate of borrowers who fell 90 days or more behind on their cards dropped to 1.11 percent for the first quarter, down from 1.32 percent in the 2009 period, according to credit reporting agency TransUnion. The delinquency rate was also down from the fourth-quarter of 2009, when it stood at 1.21 percent. snip

Becker pointed to credit card reforms with making it easier for consumers to pay their bills.

Before the law took effect, a bank could have raised a customer's interest rate without warning. That would have driven up the minimum payment due. Now, banks can't raise interest rates before giving customers 45 days notice, and can't hike rates on existing balances. The law also curbs over-the-limit fees and penalty fees, and mandates that payments above the minimum be applied to balances with the highest interest rate first.

These restrictions helped keep balances down, which in turn kept minimum payments lower, Becker explained. Minimum payments are usually a percentage of total balance.

[DonCoquixote]

1. OMG

You mean reform actually cured a problem? What's next, will Gravity be repealed? (SARCASM)

[Skink]

2. without late fees to generate more late fees to generate more late fees....

[zipplewrath]

3. As intended

This feature of the law was intended to stop the problem before it grew. People still get in over their heads, but the costs are now front loaded to the problem pops up earlier. Before, the interest rates were kept low UNTIL the problems started. Then the fees were stacked up, and interest rates were jacked up. Now, the fees and rates hit you right up front, and the interest stays constant on those balances.