Chart 56 Liquidity Catalyst: Minimum Payment Compliance: JPM and C Still Not Yet Compliant

Example Using Previous Guideline: 2 Percent Minimum Payment Rate (monthly)
Item Description Number
Beginning balance $10,000
Annual percentage rate 18%
Minimum payment rate 2%
Average monthly minimum payment for 1st year $194.59
Months to pay off debt 691
Total interest paid $28,930.64

Example Using Previous Guideline: 2 Percent Minimum Payment Rate (monthly)
Time Minimum Payment Interest Paid Principal Paid Remaining Balance
Year 1 $2,335.08 $1,751.31 $583.77 $9,416.23
Year 10 $18,080.49 $13,560.35 $4,520.16 $5,479.86
Year 20 $27,988.33 $20,991.29 $6,997.15 $3,002.89
Year 30 $33,417.76 $25,063.32 $8,354.47 $1,645.54
Year 40 $36,393.03 $27,294.76 $9,098.26 $901.73
Year 50 $38,023.51 $28,517.47 $9,505.92 $494.05
57 Years, 7 Months $38,930.64 $28,930.64 $10,000.00 $0.00

Example Using New Guideline: 4 percent minimum payment rate (monthly)
Item Description Number
Beginning balance $10,000
APR 18%
Minimum payment rate 4%
Average monthly minimum payment for 1st year $349.34
Months to pay off debt 178
Total interest paid $5,915.67

Analysis of Principal and Interest Components of New Guideline's 4 Percent Minimum Credit Card Payment over Time
Time Minimum Payment Interest Paid Principal Paid Remaining Balance
Year 1 $4,192.03 $1,572.01 $2,620.01 $7,379.98
Year 5 $12,497.38 $4,686.48 $7,810.86 $2,189.16
Year 10 $15,233.25 $5,712.45 $9,520.82 $479.24
Year 14 $15,537.89 $5,826.68 $9,711.24 $288.83
14 Years, 10 Months $15,915.67 $5,915.67 $10,000.00 $0.00

Notes: A higher minimum payment will lead to more delinquencies and greater bankruptcy risk.The increase in minimum payment rate from 2 percent to 4 percent leads to a new monthly payment that is almost 2 times larger than the previous payment. The result is a high probability that many borrowers with inferior credit may be unable to meet these higher payments, leading to increased delinquencies and bankruptcy risk for lenders.
Sources: Bankrate.com and CIBC World Markets.