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January credit card bills deliver nasty surprise

Some credit card holders received a jolt along with their January bills.

In many cases, the amount of minimum monthly payments doubled because of a regulation the Federal Reserve Board and the Office of Comptroller of Currency (OCC) are considering that will affect national creditors, such as CitiBank and Bank of America.

Minimum credit card monthly payments are based on a percentage of the balance of a credit card account. It is that percentage that OCC and the Federal Reserve Board are discussing, with an eye to increasing them.

In anticipation of the expected regulation, some national creditors hiked their rates this month.

And that jolt is causing hardship for many, according to Geoff Baker, director of the non-profit Consumer Credit Counseling Service of Yakima Valley.

"We're dealing right now with a lot of people who have gone through Christmas time and found out, unexpectedly, in January they have to pay more, and many, especially those on fixed incomes, are unable to make their minimum payment," said Baker.

"We are counseling up to 60 or 70 a week because of this throughout Central Washington. We counsel by phone. We're available on internet and they can come see us in person," said Baker.

Pinpointing how much those minimum payments increased this month appears to be a job for a super sleuth.

"I can't give you a short and sweet answer. It does vary from creditor to creditor," said Baker.

"Banks are incorporating a policy to request the consumer to pay a higher minimum payment percentage amount," said Martha Espinoza of US Bank in Sunnyside.

"US Bank requires 2.5 percent of the balance owed as a minimum monthly payment," said Espinoza, who noted that 2.5 has been the going rate for some time at US Bank and she was unaware of any increase. "I haven't received notice of an increase, but there could be one."

Kelly McPhee of Spokane, a spokesman for American West Bank in Sunnyside, called the OCC and Federal Reserve Board's potential regulation "a smart money choice to assist consumers from getting in over their heads."

She said American West has set its minimum monthly credit card payment at $25 or 2 percent of the balance, whichever is greater, and don't anticipate an increase.

"We have not had an increase, but we do encourage credit card holders to pay more than the minimum," said McPhee.

She added that OCC does publish guidelines and discussion is centering on minimum payments that would include new interest charges and penalty fees plus 1 percent of the balance of an account.

"Because there has been a lot of discussion on this topic, credit card issuers are anticipating the minimum payments to be revised the first of this year. Since they have received the announcement, some of the national creditors have doubled their payments, from 2 percent to 4 percent, but they are required to notify their consumers," she said.

Gary Wagers, manager of consumer lending at Banner Bank's headquarters in Walla Walla, said the rate at Banner Bank is set at 2 percent.

"That may be a bit lower than what's out there," he said, "but we don't intend to raise it."

He said Banner Bank, which sold its credit card business five years ago and just jumped back in with the service in November 2005, is taking "an old fashioned approach" by maintaining across-the-board interest rates and not charging penalty rates. He said that gives the bank some leeway in maintaining the low 2 percent minimum payment rate on an account's balance.

For the national creditors the motive behind their increases was to anticipate a regulation they can see coming down the pike.

The motive behind the OCC's and Federal Reserve Board's decision to up the monthly minimum payments was, according to Baker, "an effort to protect the consumer" by quickening the pace at which consumers can pay back a debt. In some cases, Baker noted, the principal on a debt can actually increase if very little is being paid on it.

What kind of advice is Baker and his staff giving to those people flocking to their offices located throughout Central Washington?

"First...count to 10," Baker said ruefully.

"Then start to see what does this really mean. I tell everyone to take their Christmas debt out of their budgets. If you find you really are sunk, come talk to someone," advised Baker.

"We give free counseling to those in the community who feel they're in debt and there's no way out. If we can help them find a way to solve their own problems, there is no charge. If it turns out to be a financial hardship, we charge $25 to set up a plan for them and $15 a month to maintain it, but we will even waive the $15 if there is a hardship, knowing that, as they get out of debt, they will be able to begin to pay," said Baker.

The goal of credit counseling is to avoid bankruptcy, said Baker, explaining that the non-profit counseling service is supported by the companies that issue the credit cards. "It's in their best interest if bankruptcies aren't claimed," he noted.

Baker said he will be setting up free workshops in the Lower Valley within the next two weeks to give tips on how to deal with the increased minimum monthly payments on credit cards while maintaining quality of life.

"We usually contact the library to secure a meeting room because we don't charge for the workshops, so can't afford to rent space for them," he said.

Baker said he would announce the dates and times soon.

Gary Wagers of Banner Bank had a few tips of his own to share with those who were hit with the bad news this month.

"The best way to use a credit card is to pay it off in full each month, and then it becomes a tool to use," said Wagers.

If card holders did that, those who issue credit cards would lose the income from late and over the limit fees and interest, but they would still benefit, Wagers noted, from annual fees (if any) and from the interchange fees merchants pay to card issuers for every transaction.

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