Standard & Poor's said the increase in credit card minimum payments, due to go into effect at the end of next year, will not negatively impact credit card ABS and will more than likely be offset by higher payment rates and the positive effects of recently enacted bankruptcy reform.
Minimum payment increases on credit card balances were recommended by the Federal Financial Institutions Examination Council in 2003. Credit card companies must change their minimum payment requirements by the end of 2006, but most will have made the adjustments by the end of the first quarter of 2006, said S&P analyst Carl Neff.
Speaking on a conference call last Wednesday, Neff said losses are expected to go up 20 to 40 basis points in the short term after credit card issuers enact the higher minimum payments, and in the long term losses might increase by 10 to 20 basis points. Payment rates, however, will increase, as a result of the rule. For prime trusts, Neff said payment rates could go up as much as 50 basis points, as 15% to 20% of consumers make minimum payments, whereas in subprime trusts the number of consumers making minimum payments is in the 20% to 45% range.
Neff said he expects portfolio yields will fall, as banks have said they may waive certain fees that contribute to negative amortization.
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