Lost in translation: Credit card bill notes curb cardholders' monthly payments

Nov 07, 2011

Credit card customers are likely to pay less toward their credit card debt because their monthly bills display information about the minimum required payment amount, American and British researchers report in the Journal of Marketing Research.

For many debt-laden , printing the minimum required payment on their account statements can reduce the amount they pay each month by as much as 24% – about $120 less on a $2,000 balance – according to the researchers, who conducted surveys of more than 500 U.S. consumers and reviewed anonymous data from more than 100,000 British cardholders.

"The mere presence of minimum payment information acts like an anchor on borrowers' repayments, pulling them downward," said co-author Linda Salisbury, an assistant professor of marketing at Boston College's Carroll School of Management. "This presents a tricky balancing act for lenders: removing the minimum required payment may increase repayments overall, but it would also put lenders at greater risk of increasing default levels."

With hovering at slightly more than $10,000 for the typical American household and regulations mandating a range of debt and repayment information be included in monthly statements, researchers sought to find out if the data actually motivate consumers to pay down their debt.

Increasing the minimum required payment – typically from 2 percent to 5 percent of the loan balance – actually had a positive effect on repayment for most consumers. However, that alone wasn't enough to overcome the negative effects of posting the minimum required payment, according to the researchers from Boston College and the University of Warwick, University of Essex and University College London, all in the United Kingdom.

In addition, displaying information like payment scenario timelines and potential long-term interest costs – as is now required on US statements – did not encourage increased payments. Disclosing future interest costs significantly increased the likelihood a cardholder would pay only the minimum required.

Borrowers' credit limit, balance due and propensity to pay the minimum required payment all factored into the influence of statement data on payment behavior, the team found.

For borrowers who typically pay the minimum each month, increasing the minimum required amount has a positive effect, but this is not the case for borrowers who typically pay more than the minimum required; increasing the minimum had no effect for them.

While the U.S. CARD Act of 2009 mandated many of these new information disclosures, researchers point out that disclosure alone is not likely to increase debtors' monthly repayments to the levels expected.

The researchers urged "clinical trials" to test the impact of debt information disclosure, noting that the U.S. Office of Management and Budget had drawn the same conclusion in their guiding principles for the use of information disclosures in the regulatory process.

"By testing new regulations more thoroughly before implementing them, regulators can avoid unintended consequences such as those identified in this research," said co-author Katherine Lemon, the Accenture Professor of Marketing in the Carroll School of Management at Boston College.

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aaaaaaaaa
1 / 5 (2) Nov 07, 2011
If anyone thinks that NOT knowing the minimum amount, or in some cases the maximum amount you can pay your debts per month without incurring penalties is a good thing, then they are delusional.
This research sounds like it was sponsored by the very same people who caused the current global economic difficulties.

It is seldom that those who create problems in the first place can solve them.

It's fairly clear, judging by the protests about corporate GREED in western cities that the majority of the people have had enough.

The W(b)ankers, Politicans had better start listening and let us vote ,give us Democracy or they should be treated in the same manner as Gadaffi or Sadam Hussein.

Revolution is often a good thing. (I think it's coming).

p.s. The London Olympics may well be the first Civil War filmed in 3D.
aaaaaaaaa
1 / 5 (2) Nov 07, 2011
If anyone thinks that increasing the minimum amount, or in some cases decreasing the maximum amount you can pay your debts per month without incurring penalties is a good thing, then they are delusional.
If you are struggling to feed your family, pay the rent are you more or less likely to turn to crime?
This research sounds like it was sponsored by the very same people who caused the current global economic difficulties.

It is seldom that those who create problems in the first place can solve them.

It's fairly clear, judging by the protests about corporate GREED in western cities that the majority of the people have had enough.

The W(b)ankers, Politicans had better start listening and let us vote ,give us Democracy or they should be treated in the same manner as Gadaffi or Sadam Hussein.

Revolution is often a good thing. (I think it's coming).

p.s. The London Olympics may well be the first Civil War filmed in 3D.
aaaaaaaaa
1 / 5 (2) Nov 07, 2011
Ran out of time with version 1 edit.
Probably due to neutron repulsion.
f33dback
5 / 5 (1) Nov 07, 2011
That's a non-issue for me, I don't use credit cards.

I would suggest one addition, a warning sign stating that "credit cards can be bad for your financial, physical, and mental/emotional health" and for every ad on television to have that fast talking guy in the background telling you why.

Not that it will change anything, just for my amusement.

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