Minimum Payment - Time to Abolish This Great Idea?

An interesting study done in Warwick University reveals that minimum payment requirements presented to customers by the credit card companies (as dictated by law) in an effort to increase payment amounts and decrease consumer debt levels, may actually be doing the opposite. According to the study, people who would have otherwise paid a higher amount on their credit card bill, faced with the minimum payment amount, which is usually a very low amount, pay significantly less towards their balance therefore increasing their indebtedness.

Talk about unintended consequences. They should really conduct some economic focus groups and do rigorous simulations before they pass any law intended "to provide incentives for an improved behavior." Of course, a good chunk of all legislations would fall under that category.

Additional Resources:

• A nudge in the wrong direction