Alert October 06, 2009

OTS Issues Credit Card Minimum Payment Guidance

The OTS issued a CEO Letter on “no interest, no payment” credit card programs that allow borrowers to defer making payments for extended periods. According to the OTS, these programs are most commonly associated with private label marketing agreements for retailers such as electronics and furniture companies. In the letter, the OTS states that it expects lenders to require minimum payments that will amortize the current balance over a reasonable period of time consistent with the unsecured, consumer-oriented nature of the underlying debt and the borrower’s documented creditworthiness. Specifically, the OTS states that the minimum monthly payment should cover at least a 1% principal balance reduction plus all assessed monthly interest and finance charges. The OTS indicates that a minimum payment should be required from borrowers each month for all credit card programs, including private label arrangements with retailers. While “no interest” promotions may be offered, the OTS expects there to be minimum monthly payments during the promotional period. Click here for the letter.