Beware of 3Q and 4Q Banking and Credit Card Earnings – Manipulation of Earnings with Minimum Payment Scam
In an effort to quickly raise cash to finance their operations, many large banking and consumer lending institutions are pulling some strings to get a little extra cash out of their clientele. The results may look great on paper, at least initially, but the signs point to further problems down the line.
What’s Going On?
There is one major culprit in this grand scheme, though various other banks are equally as guilty. JP Morgan Chase, one of the largest credit card issuers in the country is doing a run-around on its cardmembers. Chase hopes it will be able to shake its unprofitable customers or fiscally force them into higher rates. Here’s how it works.
Step 1: Find Low-Balance Transfer Cards
Chase offered many customers very generous balance transfer offers of 1.99% and 4.99% for life, both of which are excellent APRs. Many customers decided to use their (often high) credit limits on the card to finance extraordinarily large purchases – some bought cars, some took the money to pay off higher interest debt and many more borrowed the cash to ultimately lend at a higher rate through a CD.
Step 2: Find Inactive Credit Cards
The scheme, which now affects as many as 1 million customers, has only until now been deployed on cardholders that haven’t used their cards in quite some time. Many of these customers maxed out their credit line with the balance transfer and have simply been making minimum payments. And why wouldn’t you? What’s the rush in paying off a super-low interest loan?
Even if the customer had been paying on time, every time, they were still targeted for making use of their low interest rates. In many ways, Chase isn’t looking to get rid of its risky customers, instead its shaking out some of its best customers, despite their low profitability.
Step 3: Raise Minimum Monthly Payments
To push cardholders away, Chase decided to raise minimum monthly payments from 2% of the balance per month, to 5%. While this may seem a small change, for many this brings monthly payments from $200 to $500, a budget breaking boost for many customers. Keep in mind that most people who used the balance transfers borrowed thousands, if not tens of thousands. Many thought it would be a much better offer than using a traditional car loan. There’s no comparison between 1.99% per year and 6% per year.
Step 4: You Can Keep Your Payment, If We Can Rip You Off
In the most recent change of terms, most likely aided with the help of high priced lawyers, Chase mad sure its minimum payment bump from 2% to 5% was completely legal. Traditionally, cardholders have the right to opt out of changes to the terms of service and instead decide to close their account. In this case, however, monthly minimum payment changes are not considered a change to the TOS and a cardholder cannot simply change the terms.
Step 5: How ‘Bout A Deal
The bank that took $50 billion in your taxpayer dollars wants to be your friend. You know, they offered you low rates and low payments, then gave you the ‘ol bait and switch. Why shouldn’t you trust them?
After giving them a call and talking to a customer service rep, who likely got 494093593 calls before you, you’ll find the bank is on the fritz in trying to kinda keep people happy. Your customer service representative will likely offer you a deal, keep the minimum payment, and your APR will go from 1.99% or 4.99% to 7.99% until January 2011. After that, the rate will reset to the normal purchase APR of roughly 19% per year. What was once 1.99% for life, is now 7.99% until January 2011 and then 20% per year. So kind of them… so so kind.
How It all works Out
In the short term, banks should see some impressive cashflow with the minimum payment now being 5%. In the long run, however, many people simply won’t be able to pay 5% per month. Many more will never read their warning letter and many more will go flat broke trying to pay this off. Third and fourth quarter results (the most recent Chase mailing kicks of on August 1, 2009) are sure to be inflated with lots of credit card cashflow. But I worry that most customers won’t be able to hang on for long, and the default spree will begin near the turn of the year.
Make a Stand
If you’d like to take a stand for the screwed over cardholders and shake a fist at the greedy bankers, here are a few numbers to call.
Call (202) 224-3121 for the U.S. House of Representatives switchboard operator. JP Morgan Chase received more than $50 billion in federal bailout money.
Call 1-800-432-3117 to annoy the living hell out of Chase and its management. Make them work for their money.
Call 877-ASK-FDIC ask your regulators why Chase and other banks are getting away with usury.
Jordan,
Your article is right on….It is a shake down and it is going to take Chase (I hope) and our economy down. The switch deals are pushing 12% to 21% in order to keep the minimum payment….They really want you to default so they can JACK you up to 29.99% Thanks for the numbers….I am going to send others your way
Thanks for the excellent article Jordan. I saw the link on http://www.changeinterms.com where marge11 posted it in the comment section of a blog post I made yesterday. I’ve been making 5% payments since January and have sent Chase nearly $4,000 more since then than I would have had to pay if they had kept the original terms of the agreement. My payment jumped from $416 in December, 2008 to $1,025 in January, 2009.
And there are hundreds of thousands of people just like me out there. How is the economy going to be stimulated when all our discretionary cash is going into Chase’s coffers? Believe me, I had a lot better places to spend that money than into inflating Chase’s cashflow numbers.
I agree. This is a shake-down and it’s a darn shame it’s considered a Legal practice. This may not be a change in terms of the interest rate; but it’s certainly not what the consumer signed-up for. 850,000 people got this notice, many will default, file for bankruptcy or go to consumer credit counseling. I, for one, have no way to come up with the increase (an increase of $825 per month). Shame on me for thinking a deal was deal.
It looks like more people will be on the Chaise Credit Card Diet soon.
See it at http://www.youtube.com/watch?v=vt-a_8LYzrw
Unfortunately, this is more reality than spoof for a lot of people.
I am one of the 850,000 people affected by this latest round. I have a 24K balance and like all of you, could not afford the “new” min. payment. I haven’t slept in almost 2 weeks since I received the notice. This seems to be the only thing I can think about. I have filed complaints with the OCC, FTC, AG, Senators, Congressmen, and anyone else who will listen. After reading several recent posts on different websites, I decided to call again and be NICE! I was referred to what they called the “Proactive Solutions Team”. 800-404-6220 was the # I was given. I called and they asked income/debt info and said I qualify for 5 year loan at 2% fixed interest. No prepayment penalty and I have to close my credit card. They said I would get confirmation in approximately 2 weeks. I do not know what makes one qualify for that rate or a much higher rate, as many of the posts I’ve read people are being offered from 6% to 17%. But with the exception of this Chase card I only have one auto loan and my home is paid off (used Chases money to pay off my house due to super low interest rate) So maybe it is just your debt/income ratio that makes the difference. I have no idea what drives any of this. All I do know is I will never ever do business with them again once this is paid off. And I will of course continue to be sick to my stomach over this for the next couple of weeks until I get confirmation in the mail that this is indeed exactly what they said it is. I’m very leary because if something is too good to be true, than it probably is. But at this point, I have no other options but to wait and see as I refuse to take out a HELOC and turn unsecured debt into secured debt. I have always been a person of principle, and every fiber of my being wants to not pay them another dime…teach them a lesson! But I know, and you know, that we will be the one to pay in the long run. Good luck to all of you, I will post again if and when I receive my confirmation of the new terms. And if anyone else has gotten the same offer I got, and you’ve gotten your written confirmation, please post it.
Don’t take their “deal.” I bet they just turn around 6 months from now and hike your minimum back up to 5%, except now with a new higher rate.
I just called Chase and asked a supervisor how this was legal. Their reply was that according to the cardmember agreement, they could change the terms at any time, and that if they wanted to, they could demand 100% of the balance in any given month. Nice.
Hi all. I will be greatly affected by this new minimum payment increase. I have 3 cards with Chase with very high balances and low fixed interest rates.
I also have several other cards because I was forced to live off of them for a while. Although I have never been late and I recently took a job in the Middle East just to pay my debt, I may still be forced into bankruptcy. This really does suck.
Ok, so my question for the group is this: If I close my other cc accounts, can they change terms after the account has been closed? If not, I think that may be the safest way to go before other cc companies follow suit. Thanks in advance.
I currently have an $18,000 balance with a 3.99% rate. when I bought my new car, Toyota would only offer me an 8% rate, so I transfered it to one of my empty Chase cards. I set up my own payment schedule to pay this off in a time frame that was comfortable for me, but allowed me to put more money against other higher interest loans, such as my Mortgage.
I usually do not read the change in terms as I don’t carry balances on cards used for purchases and I thought a contract was a contract in regards to these low interest loans.. Boy was I shoked to see that my payment would double. For the life of me, I can’t understand why Chase wants to get less interest from me over time.
I’m not going to default. Can’t they figure that out based on my spotless credit history? Preying on their smartest customers will come back and bite them, wont it? Since I’ve got two chase cards, one for purchases, and one with this loan balance, I’m going to call for the hell of it and see if I can leverage one against the other. In the end I’m sure Chase would rather I cancel both cards and take my business elsewhere.
I judge a business not by how they treat you in the good times, but how they treat you in the tough times. Chase has decided that their business model has no place for smart middle class consumers.
This comment from CHASE was posted at banktime.com and sent me into a tizzy!!!!
I let’em have it!!!
“The cardholders affected by the new minimums will be those considered “high risk,” who have been less than diligent about paying their account scrupulously in the past…”
Contact these people to complain about the egregious bait and switch
Global Media Relations
Joe Evangelisti
joseph.evangelisti@jpmchase.com
Corporate Media Relations
Jennifer Zuccarelli
jennifer.r.zuccarelli@jpmchase.com
Retail Financial Services and the U.S. Region
Tom Kelly
thomas.a.kelly@chase.com
Credit Card Services
Paul Hartwick
paul.hartwick@chase.com
Stephanie Jacobson
stephanie.jacobson@chase.com
Tanya Madison
tanya.m.madison@chase.com
The scary part of this little change in minimum payment is the “minimum” part of the payment… 2% to 5% to 8% to 40%? Who defines the minimum payment? What if they say, “well you should be able to make a minimum 10% month payment” Most people will go under. I for one, will just keep making the same payment… when it goes to default, I’ll make no payments. When some other banks start raising there’s because I’m in default I’ll become the bum they want me to be… In the end, I get stuck with the bill anyway. US Gov. is giving my future taxes to them today.
Great article Jordan - thank you! I am not certain what I am going to do either, as I am going to be dramatically affected by this change. I too have filed complaints everywhere, but it doesn’t change the fact that as of next month, my minimum payment will be unmanagealbe.
Theresa - I agree with RA - I would also be hesitant to accept any deal/offer from Chase at this point. I understand that you want to just move forward, but I would be curious as to how this is going to affect your credit score. Also, once the majority of the people with fixed-rate offers default, Chase is going to be scrambling (once again) to keep their head above water - who knows what other scam they will concoct. I think that you (along with most of us) are probably going to end up with the short end of the stick either way.
Jerry - you may have the right idea. Why keep paying once they have forced you into default? (At 20-30%, plus late fees & whatever else they tack on, it will take a lifetime to pay off a large balance.) I am not going to file bankruptcy, I’ll just keep up my end of the bargin with all of my other debts - mortgage, car loan, etc. & Chase can take their greed & corruption and shove it! It may be stupid, but I am sick of being punished for everyone else’s mistakes. I have never in my life not paid a debt; however, Chase is disgusting & it would feel great to tell them to stick it! I’ll just put the money that I was paying to them each month towards other bills/savings.
Here is a quote from another site after they made a DEAL with Chase’s Proactive Solutions dept….
“as soon as my next payment processed I will get a confirmation in writing. She also stated that it may take 2-3 payment periods for the actual amount and payment plan to kick in and my monthly statements may be higher, but so as long as I paid the amount agreed to in our discussion today, I would be OK. This makes me nervous, but she said that the letter that processes as soon as I make my next payment will state this.”
I WOULD BE NERVOUS TOOOOO!!!!!
Just an update…I did receive in writing the new terms of my loan, and as they said it is for 60 mos. at 2% interest, my balance is 24,500 and my payments are 442.00 per month. And if I look online, it also reflects the agreement there as well.
Don’t pay them one more f…ing dime! Take a stand America! United we stand, divided we fall! It’s time to DEFAULT IN UNISON! The government is in bed with these banks, don’t hold your breath, thinking they’ll bail you out! I think Americans should take America back! Join the revolution! Oh, by the way, have you noticed CNN, MSNBC, and FOX are not making this a major ISSUE?, huh, I wonder why….maybe these banks own them too with the commercials they buy!
@B
My situation is the same as yours and I am in total agreement.
Enough of the abuse from Chase Bank! Fight back! Even if you take the Chase “deal”, call your representatives. Don’t let Chase off the hook.
See the video at
http://www.youtube.com/watch?v=AISu9ho1FfA
Well I am one of those that just got nailed by Chase and I had no idea that Chase planned on or could have even done this so abruptly. My $173.00 monthly min. payment that I have always PAID ON TIME and always MORE than the min. payment required, went up to $430.00 because it was a balance transfer offer for a fixed rate of 3.99 on a 8,600.00 balance that they would like to get rid of so they can lend that money out at a higher interest to others. I will struggle to make it but I really feel for others who might have to suffer a default interest rate of 30% because they ended up missing a payment due to the fact that they can’t afford the difference in payment so abruptly. Wamu was always good it seemed, but since Chase took over, it turned into as much of a Loan Shark as any Banking Institution can get. But I am not taking this lightly. Next week I will take out all the money in my 2 Chase checking accounts leaving only $12 in each and open new accounts at another bank. I will then write myself a monthly check (since I have all these leftover checks) to my new Banks for $1.00 out of the Chase accounts as a constant reminder to Chase that I am using a different bank for my business now and still keep Chase’s administrative staff busy with my FREE checking accounts. My Sons will do the same with their accounts at Chase. Then I will balance transfer my other 2 Chase credit card accounts that are lower balances with higher interests to another bank. I read where banks said they are doing this so people can get out from under their debt. BS…. My other 2 Chase card accounts with a higher interest, their minimum payments didn’t change. If anyone has suggestions on ways to protest these disgusting tactics of Chase to fatten their bonuses when people are desperately struggling to just survive in this economy, Please share!!!
Keep in mind that when you cancel a crdit card it lowers your credit score. It may or may not be important to you at a particular time.. For instance if your are planning to get a new car loan… Get it first.
Continue to make a stand and spread the word. I have sent emails to the White House, Local News, Consumer Affairs, etc. In MY opinion this is what I call, ‘Legalized Blackmail or Legalized Loan Sharking’. You can take your pick.
I will celebrate the day when I will no longer have Chase to deal with!
Another one who took the “DEAL” through the Hardship Department at Chase. Only got the APR down to 6% but the payment is lower than what our previous minimum payment was and will be paid off in 5 years. I still don’t trust them and won’t be using them after this loan is paid off, but we decided that it’s the best option for us right now, since we can’t afford the 5% minimum payment don’t want to declare bankruptcy.
ATTN “TERESA”. I am replying to thank you for the information you posted about the Proactive Solutions Team. We have a toddler with a genetic disorder, called albinism, and we had used the low interest rate Chase card to consolidate medical expenses. When our statement arrived and our monthly payment had tripled to over $900/mo on our 18K balance, we fell apart. There was no way we could afford this. Our son needs weekly vision therapy and occupational therapy, special eyeglasses, special sun-protective clothing, etc. We have excellent credit that we would see destroyed. We lay awake at night terrified about how we were going to deal with this. We were terrified we wouldn’t be able to give our little one what he needs. Then, my husband saw your posting on the internet. I had already spoken to Chase customer service, but the deal they offered was impossible: my current rate at 4.77 would jump to 7.99 and in 12 months it would go to 16% for the life of the balance! I’ve never had an interest rate like that in my life and we’d never get out of debt! So I took your advice and called the Proactive Solutions Team. I explained our situation to a very nice operator. We have no credit payments other than our chase payment & our mtge. Our cars are paid off, etc. After about a 30 minute conversation, we were offered a payment less than our original Chase payment, 2% interest rate and payoff in 54 payments, no negative info on our credit and the card was to be closed. If you’ve ever wondered if the good deed you’ve done has ever impacted anyone’s life, you should know that because of you a 17-month-old, visually impaired Steelers fan in Pittsburgh, named Enzo, will have the care & therapy he needs. And he’ll have two parents who aren’t having their hearts torn out all night long, feeling as though they’ve failed their little boy. Thank you is not enough. I will continue to share this info with others to help them and pass on the good deed you started. If it is possible to send a hug through a posting, you just got a big one – from two grateful parents and one very, very special little boy.
P.S. Anyone who doesn’t take this avenue to call the Proactive Solutions Team (I saw other postings) is shooting themselves in the foot. I used to be a banker. When you don’t pay your credit cards, you’re not screwing a credit card company, you’re screwing a bank. Trust me, you should never screw a bank - any bank. Many potential employers are running credit checks now before considering candidates for hire or promotion. No politician is coming in on a white horse to save us from the big, bad credit card company. Your white horse is being ridden by the Proactive Solutions Team, but it will require a bit of a trampling to your pride. There’s still time to save your good credit rating. See “Teresa’s” original posting.
Nancy, Oh my gosh…you are so welcome and here is a big hug right back for your family and your precious little boy! So far so good with the agreement with Chase. You are right about having one’s pride trampled a bit, however, it’s much better than the alternative. I’m sure my FICO took a bit of a hit, however, with ALL the CC companies lowering limits and closing dormant cards, whose hasn’t taken a hit? And I understand people being leary of any deal from Chase, but unless you’ve got the ability to pay off your large balance, as a responsible credit user, what choice do we have? I’m a fighter, and I wrote all the appropriate letters, etc…and it got me nowhere. But at the end of the day, my ability to get a good night sleep is more important to me and my family than my “teaching Chase a lesson”. They will get there’s in the end, karma’s a *itch!!! Even though my situation has been handled for about 7 weeks, I still read posts daily from people regarding the min. payment increase, and it rips my heart out as I know the exact agony they are going through. So I continue to share info on different sites hoping someone will find the same relief that I did when I called the Proactive Solutions team. I’ve never let life make me a “victim” and I’m sure as hell not gonna let JP Morgan Chase make me one! Also, you are right, there is no knight in shining armor coming to our rescue…there has been ZERO media coverage on this and we all know who controls the media! We have been hung out to dry on the clothesline of lobbyism! Good luck to all and God Bless!
PLEASE go to the following link and post your stories.
http://moneyfeatures.blogs.money.cnn.com/2009/08/16/rising-credit-card-minimums-fair-or-foul/?section=money_topstories
The article is titled, “Rising credit card minimums: Fair or foul?” It is a completely skewed story, regarding the Chase minimum payment increase. It leaves out most of the important points regarding the situation. It is clearly an attempt to spin public opinion in favor of Chase.
Teresa - Your take on the media is correct - ironically, before I was a banker, my first career was as a director in TV news…back when news was actually news…and newscasters actually had to have a degree in journalism. Still can’t thank you enough.
See the new Chase protest video at:
http://www.youtube.com/watch?v=LaCpi0m1wew&feature=channel_page