The neg-am credit card

By Felix Salmon
May 19, 2009

Remember those negative-amortization mortgages, where you could pay less than the interest rate and see your total amount owed go up from one month to the next? Those worked so well, now the credit-card companies are following suit!

I got my Chase credit card bill this week and it had a $0 minimum payment, although I had had an abnormally expensive month. It didn’t make much sense til I looked closer and found this on my bill:

“You have the flexibility to skip a payment. You must pay past due and overlimit balances immediately. However,the remaining minimum payment for this month has been reduced to $0. Finance charges will continue to accrue. To reduce your balance, feel free to make a payment.”

I just love that line about “feel free to make a payment” — and also the fact that Chase waited until the balance was abnormally high before it tried this stunt. And people wonder why JP Morgan’s credit card losses are rising fast and could hit 24% on some portfolios.

12 comments

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10 posts in 6 hours. Take one hour for lunch and that’s one post every 30 minutes. Com’on felix. your stuff just isn’t rigorous. but i guess that’s the blogsphere, making noise for the sake of making noise. lame.

Posted by anon | Report as abusive

I guess I don’t see much difference between $0 and $15.

Posted by Kurt Harland Larson | Report as abusive

I really appreciate you mentioning this new twist in the credit card arena. I received the same from Chase! I instantly wondered what was up with it, was it a new scam? Do you think it is safe to go ahead and “skip the payment”, or is something devious lurking around the corner?

I believe I was being offered this deal on what seemed like a random basis, though I’ve quit reading my paper credit card bills, and haven’t noticed such an offer online. (I’m not sure I would notice it, though.)

Some five or ten years ago, I was surprised to hear for the first time that, if you made only the minimum payment, it would take n years to pay off your credit card; I had assumed the figure was infinite, and that actually paying the credit card off would require more than meeting the bare minimum contractual monthly requirement. I didn’t have the sense that I do now that there are a lot of people who don’t use financial flexibility in ways that accrue to their long-term benefit; the people who would best use an offer like this are those least likely to use it.

Where Chase got me was back in January when they changed the process for paying online and I accidentally canceled the transaction when I thought I was confirming it. It really cost me because I had made several thousand dollars of charges after the end of that billing cycle, but my nonpayment resulted in immediate interest charges on them.

Posted by Eric | Report as abusive

“you can skip the minimum payment” equates to “our internal IRR goes through the roof if you are foolish enough to do so”

Posted by Griff | Report as abusive

If you don’t pay it off in full every month, you are an idiot. Just like the fly caught in a spider web. Watch out for those pages of sneaky contract double-talk. — The worst is a practice of sharing info amongst banks, where falling behind on one payment can cause ALL of your interest rates to leap skyward. — Also beware of a non-activity fee on those seldom-used cards, be sure to put something on every card each month.

Posted by Bill | Report as abusive

Here is my experience with Chase

I once racked up a credit card bill buying appliances on a Chase card with 1% for a year type deal a few years back and one day I got a letter that said that due to changes in my credit my rate would increase to something like 29% in 3 months. Luckily I had the cash and paid the stupid card off, but if I did’t then I would have been screwed. I checked my credit and there was nothing on there to warrant such statement. Actually what they did was illegal.

Posted by ScrewChase | Report as abusive

I got the same notice. It was especially infuriating given the fact that a month ago they forced me to choose between cutting off my credit or face a “market rate” increase of 1100 basis points. At first they don’t want their customers to borrow, now they are encouraging them to skip payments, this company is schzophrenic.

“And people wonder why JP Morgan’s credit card losses are rising fast and could hit 24% on some portfolios.”
Um, usually with Negatively Amortized products the losses don’t appear until the limit or threshold amount is reached, that’s because the borrower can continue to not pay any major cash until that point.

Posted by Aiden | Report as abusive

Adore the JP Morgan post — especially since they are sending accounts direct to debt collectors one day after the due date. I was traveling in India on a corporate card and did not get back to the States in time. I had a couple of calls from debt collector sharks and once when I called in to say I had submitted all my expenses via my company online portal (less than 60 days out) and all would correct the person on the phone told me they could come after my personal property to settle the debt. Nice! If they do indeed come after my 1999 Pontiac Grand Prix (Model Year 2000) please replace the something distribution system that no one with a 10 year old car would fix. Then I would consider buying the car out of debt — otherwise you get the car and the flaws!

Posted by Dan the Realist | Report as abusive

That’s nothing new. I used to get those ‘offers’ on a card, I think from PNC or MBNA, several years ago.

Posted by Jon H | Report as abusive