New research finds that the ‘rec­om­mended min­i­mum instal­ment’ sug­ges­tions on credit card state­ments are more influ­en­tial than pre­vi­ously thought:

Mr. Stew­art pre­sented 413 peo­ple with mock credit-card bills of £435.76 (about $650) that were iden­ti­cal — except that only half men­tioned a min­i­mum pay­ment of £5.42. Par­tic­i­pants were asked how much they would pay.

Among those inclined to pay the bill in full, the pres­ence of the min­i­mum pay­ment hardly made any dif­fer­ence. How­ever, those who wanted to pay just part of it handed over 43 per­cent less on aver­age when pre­sented with a min­i­mum pay­ment. In the real world, this would roughly dou­ble inter­est charges.

I can’t help feel­ing that The Econ­o­mist and the author of the orig­i­nal paper are tak­ing a rather naïve view in believ­ing that these rec­om­mended instal­ments are there for the ben­e­fit of the consumer.

Surely a more real­is­tic view would be that they are a ‘com­pro­mise’ between keep­ing a card-holder per­pet­u­ally in debt (max­i­mum profit) and pre­vent­ing them from default­ing on the entire amount of credit (min­i­mum profit)?

via Freako­nom­ics

(I digress, but it’s worth not­ing that out­side the UK many coun­tries don’t have laws stip­u­lat­ing that these ‘min­i­mum pay­ments’ must cover the inter­est to be charged in addi­tion to a per­cent­age of the out­stand­ing credit—in other words they are typ­i­cally designed to keep the card-holder per­pet­u­ally in debt!)