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Capital One Financial Corp. is notifying thousands of credit card customers of new minimum-payment terms on their accounts, and the change likely will cause a spike in charge-offs early next year, the card issuer says. In letters many customers received this week, Cap One announced that the new minimum payment due is 1% of the principal plus new interest and late fees. The previous minimum was a flat 3% of the principal. "This minimum payment will be required for every statement with a balance, even if you paid more than the minimum payment or made multiple payments in a previous billing period," the letters state. Cap One is making the change because of its shift to a diversified bank charter, which means it now is regulated by the Office of the Comptroller of the Currency, as are most major card issuers, Richard D. Fairbank, Cap One chairman and chief executive officer, explained last week during a conference call with analysts. Cap One previously was regulated by the Federal Reserve and the Office of Thrift Supervision, which have different minimum-payment guidelines. Cap One's new rule will increase the minimum payment for delinquent customers and likely will lower it for customers whose accounts are current, Fairbank said. It will also increase charge-offs for some customers with past-due accounts, he said, noting most issuers adjusted the minimum-payment guidelines in 2006, during rosier times. "We are the only major issuer making this change now, and we're doing so during a period of economic headwinds and rising losses across the credit card industry," Fairbank said. Based on testing, Cap One expects the change to increase the issuer's charge-off rate by about 10 basis points in the first quarter of next year and by about 50 basis points in subsequent quarters of 2009. Cap One's net charge-off rate for credit card receivables for the third quarter ended Sept. 30 was 6.13% compared with 3.85% for the same period a year earlier. Though the timing is bad, the change was expected, and Cap One has accounted for it, Howard Shapiro, an equity analyst with Fox-Pitt Kelton Cochran Caronia Waller, tells CardLine. "For customers with delinquent accounts, it will be painful, and it's reasonable to assume there were will be more charge-offs. But I am comfortable with Capital One's risk exposure," he says.
