WO2002037382A1

WO2002037382A1 - System and method for determining and setting a minimum payment for settling charged debt

Info

Publication number: WO2002037382A1
Application number: PCT/US2001/042865
Authority: WO
Inventors: Evan Lawrence Bryman
Original assignee: Capital One Financial Corporation
Priority date: 2000-11-01
Filing date: 2001-10-31
Publication date: 2002-05-10
Also published as: AU2002224467A1

Abstract

A system and method are provided for determining and setting a minimum payment for a credit cardholder. The minimum payment amount is determined based on information related to each cardholder or account, such as the outstanding debt balance on the account and/or the past credit performance of the cardholder. The minimum payment determination system environment (30) includes minimum payment grids (40), a billing system (50), a categorizing platform (80) and a computing platform (90). The minimum payment determination system also accesses an account informatin database (10) and a cardholder information database (20) which may be accessed through a communications network (70). The minimum payment information is communicated (60) to cardholder.

Description

TITLE OF THE INVENTION

SYSTEM AND METHOD FOR DETERMINING AND

SETTING A MINIMUM PAYMENT FOR SETTLING CHARGED DEBT

BACKGROUND OF THE INVENTION I. Field of the Invention

The present invention generally relates to credit card billing systems and, more particularly, systems and methods for determining and setting a minimum payment amount that is to be paid by a cardholder in order to settle charged debt associated with their account. II. Background and Material Information

Credit card products have become so universally well known and ubiquitous that they have fundamentally changed the manner in which financial transactions and dealings are viewed and conducted in society today. Credit card products are most commonly represented by plastic card- like members that are offered and provided to customers through credit card issuers (such as banks and other financial institutions). With a credit card, an authorized customer or cardholder is capable of purchasing services and/or merchandise without an immediate, direct exchange of cash. With each purchase, the cardholder incurs debt which the cardholder may thereafter pay upon receipt of a monthly or otherwise periodic statement. In most cases, the cardholder will have the option to either fully pay the outstanding balance, or as a matter of necessity or choice, defer at least a portion of the balance for later payment with accompanying interest or finance charges for the period during which payment of the outstanding debt is deferred. Although the cardholder may defer a portion of the outstanding balance for later payment, the cardholder will generally still be required to remit at least a minimum amount or "minimum payment" to the credit card issuer. Most credit card issuers currently require a minimum payment in the amount of approximately 3% of the cardholder's outstanding balance. Providing such a minimum payment permits a cardholder to defer paying a portion of their charged debt while still remaining in good standing with the credit card issuer. The credit card issuer also benefits from this arrangement since not only do they receive partial satisfaction of the debt owed them by the cardholder, but also because the issuer generates income from the finance charges and interest that will accrue on the portion of debt on which payment is deferred. However, a cardholder who pays according to such a minimum payment system will need a significant amount of time to settle their charged debt. While this will result in increased finance charge and interest income for the credit card issuer, there is also a substantial risk of attrition by the cardholder before the debt is fully settled. For example, a cardholder may become frustrated with their inability to noticeably decrease the amount of debt and, as a result, default on their charged debt. In the case of attrition, the credit card issuer and the cardholder are both worse off.

One possible solution is to increase the minimum amount due for all cardholders, for example, by raising the percentage of the outstanding debt that must be paid from 3%. While this solution would result in quicker settlement of debt, and thereby reduce cardholder frustration, it raises a number of additional problems. One problem is that raising the minimum payment for all cardholders does not take into account the ability of some cardholders to make the required payments. Raising the minimum payment for all cardholders also does not take into account an individual cardholder's credit and payment history. A greater attrition risk is posed when a cardholder with negative credit or payment history is faced with an increased minimum payment due. Another problem is that the effect of applying a higher percentage to a large outstanding debt balance is much more significant than the effect of applying the same higher percentage to a smaller outstanding debt balance.

In view of the foregoing, there is presently a need for an improved system and method to determine the optimal, minimum payment amount a cardholder is required to pay to settle charged debt. For example, a need exists for a method of determining a cardholder's minimum payment due based on the amount of the cardholder's outstanding debt. Further, there is also a need for determining an optimal minimum payment amount that would vary depending on the cardholder's present situation. For example, a need exists for a method of determining an individual cardholder's minimum payment due based oh the cardholder's estimated ability to pay.

SUMMARY OF THE INVENTION Systems and methods consistent with the principles of the present invention address the need to adjust or set the minimum payment required of a cardholder based on a variety of factors. Specifically, systems and methods consistent with the invention may gather financial information related to the account and/or cardholder and determine the minimum payment based on, for example, the cardholder's credit history and outstanding balance. Systems and methods consistent with the present invention may also gather information about the account and/or cardholder, categorize this information based on indices of a grid containing data about minimum payment amounts, locate the entry in the grid corresponding to the categorization, and establish the minimum payment based on the information contained in the grid entry. Further, systems and methods consistent with the invention may gather one or more pieces of information, which may be used alone or in any combination. These pieces of information may include, for example, the outstanding balance due on the account, the salary of the cardholder, the number of open loans the cardholder owes on, the number of accounts charged, off against the cardholder, any other information about the account itself, any other information about the cardholder that may be obtained from the credit bureau, or any demographic information about the cardholder that may help assess the cardholder's risk of attrition.

Still further, systems and methods consistent with the invention will have a grid containing data about the minimum payment amount. This data may be represented in a variety of ways, including, for example, a fixed dollar amount or a percentage of the outstanding balance. The data is organized by indices representing categories of information about the account and/or the cardholder. For example, possible indices include pre-defined debt ranges, categorizations of the cardholder's credit history (such as good performer, medium performer, and poor performer), and levels of risk of attrition by the cardholder. Further, a general scheme may be provided for the entries in the grid, whereby entries corresponding to high amounts of outstanding debt ' establish a smaller minimum payment due amount than those with lower amounts of outstanding debt. Further, entries with negative factor indices, such as poor performance or high risk of attrition, may establish a smaller minimum payment due amount than those without negative factor indices. According to another aspect of the invention, a computer program is provided for setting the minimum payment that a cardholder is required to pay in a particular billing period. The computer program product may comprise computer-readable media having computer-readable code, wherein the computer program product comprises the following computer-readable program code for effecting actions in a computing platform: program code for gathering information, program code for categorizing the information based on indices of a minimum payment grid, program code for locating a grid entry in the grids based on the categorization and program code for establishing a minimum payment amount based upon the grid entry.

Additional objects and advantages of the invention will be set forth in part in the description which follows, and in part will be obvious from the description, or may be learned by practice of the invention. The objects and advantages of the invention will be realized and attained by means of the elements and combinations particularly pointed out in the appended claims. It is to be understood that both the foregoing general description and the following detailed description are exemplary and explanatory only and are not restrictive of the invention, as claimed. Further features and/or variations may be provided in addition to those set forth herein. For example, the present invention may be directed to various combinations and subcombinations of the disclosed features and/or combinations and subcombinations of several further features disclosed below in the detailed description.

BRIEF DESCRIPTION OF THE DRAWINGS The accompanying drawings, which are incorporated in and constitute a part of this specification, illustrate various embodiments of the present invention and, together with the description, serve to explain the principles of the invention. In the drawings:

FIG. 1A illustrates an exemplary system environment in which the features of the present invention may be implemented; FIG. 1 B is an exemplary flow chart of one embodiment of a method for determining and setting an optimum minimum payment amount, consistent with the principles of the present invention;

FIG. 2 is an exemplary flow chart of another embodiment of a method for determining and setting an optimum minimum payment amount, consistent with the principles of the present invention;

FIG. 3 is an exemplary flow chart of yet another embodiment of a method for determining and setting an optimum minimum payment amount, consistent with the principles of the present invention;

FIG. 4A is an exemplary model of a grid that may be used in a system, consistent with the principles of the present invention; and

FIG. 4B is another exemplary model of a grid that may be used in a system, consistent with the principles of the present invention.

DETAILED DESCRIPTION Systems and methods consistent with the present invention reduce both the frustration and potential attrition by cardholders, thereby improving the debt recovery by the credit card issuers. This reduction occurs through determining and setting of an optimum minimum payment amount, based on information about the account and/or the cardholder. The optimum minimum payment is based on at least one of a number of non-exclusive factors, including the outstanding debt balance of the account and the cardholder's credit and payment history. By tailoring the amount of minimum payment required in each billing period, the credit card issuer faces a reduced risk of attrition by the cardholder, and necessarily, an improvement in debt recovery. The above-noted features and other aspects and principles of the present invention may be implemented in various system or network environments to provide automated computational tools to facilitate data collection and minimum payment computation. Such environments and applications may be specifically constructed for performing various processes and operations of the invention or they may include a general purpose computer or computing platform selectively activated or reconfigured by program code to provide the necessary functionality. The processes disclosed herein are not inherently related to any particular computer or apparatus, and may be implemented by a suitable combination of hardware, software, and/or firmware. For example, various general purpose machines may be used with programs written in accordance with the teachings of the invention, or .it may be more convenient to construct a specialized apparatus or system to perform the required methods and techniques. The present invention also relates to computer readable media that include program instruction or program code for performing various computer-implemented operations based on the methods and processes of the invention. The media and program instructions may be those specially designed and constructed for the purposes of the invention, or they may be of the kind well-known and available to those having skill in the computer software arts. Examples of program instructions include both machine code, such as produced by a compiler, and files containing a high level code that can be executed by the computer using an interpreter. By way of a non-limiting example, FIG. 1 A illustrates a system (referred to as the "Minimum Payment Determination System" hereinafter) environment 30 in which the features and principles of the present invention may be implemented. As illustrated in the block diagram of FIG. 1A, the Minimum Payment Determination System environment 30 includes minimum payment grids 40, a billing system 50, a categorization platform 80 and a computing platform 90. The Minimum Payment Determination system also accesses an account information database 10 and a cardholder information database 20, which may be accessed through a communications network 70.

Categorization platform 80 is adapted to provide the necessary functionality and computing capabilities to categorize the information received from the account information database 10 and the cardholder information database 20. Computing platform 90 is adapted to provide the necessary functionality and computing capabilities to calculate the minimum payment amount based on information from the account information database 10 and the minimum payment grids 40. Information obtained from the account information database 10 may include the current outstanding balance due on the account. The cardholder information database 20 may be one or more credit bureaus, such as TRW/Experian, Equifax, and Transunion. Information is obtained by the Minimum Payment Determination System 30 from one or both of the account information database 10 and the cardholder information database 20. This information is provided as input to the categorization platform 80, for determining categories or indices of the minimum payment grids 40, based upon the information received as output from the account information database 10 and the cardholder information database 20. Using the categorizations determined by the categorization platform 80 as indices, the entries corresponding to these indices in the minimum payment grids 40 are provided as output to the Minimum Payment Determination System 30. The output from the minimum payment grids 40 are provided to the computation platform 90, where the minimum payment is calculated. The calculated minimum payment may then be provided to a billing system 50, which may communicate the minimum payment information to the cardholder, for example, by mail 60 or other suitable means (such as e-mail or through an online account statement).

In the embodiment of FIG. 1A, categorization platform 80 and computing platform 90 preferably comprise a PC or mainframe computer for performing various functions and operations of the invention. Categorization platform 80 may be implemented, for example, by a general purpose computer selectively activated or reconfigured by a computer program stored in the computer, or may be a specially constructed computing platform for carrying-out the features and operations of the present invention. Categorization platform 80 may also be implemented or provided with a wide variety of components or subsystems including, for example, one or more of the following: one or more central processing units, a co-processor, memory, registers, and other data storage and/or processing devices and subsystems. It should be understood that the computing platform 90 may be similarly implemented.

As indicated above, categorization platform 80 may obtain cardholder and credit data from a cardholder information database comprising one or more credit bureaus through communications network 70. Communications network 70 may comprise, alone or in any suitable combination, a telephony- based network (such as a PBX or POTS), a local area network (LAN), a wide area network (WAN), a dedicated intranet, and/or the Internet. Further, any suitable combination of wired and/or wireless components and systems may be incorporated into communications network 70. It should be understood that cardholder and credit data may be gathered from sources other than credit bureaus, and may include data already known to the card issuer or data gathered from other commercially available sources.

In accordance with the principles of the present invention, an exemplary process for determining an optimum minimum payment amount required from the cardholder will now be described with reference to FIG. 1 B. As illustrated in FIG. 1B, financial information about the account and/or cardholder is gathered (S10). For example, this information may be gathered from credit bureaus or other commercially available sources or may be information already known to the card issuer. The financial information may include information related to the cardholder, such as credit history, employment status or income, outstanding debt and/or other personal or demographic information. The gathered financial information may also include account information, such as credit limit, available balance, outstanding balance, delinquency period and/or other information related to the cardholder's account.

The gathered information is then analyzed to determine a minimum payment amount (S20). For example, methods of analysis may include grids, tables, algorithms, or other computational tools to determine a minimum payment amount based on the gathered financial information. The analysis of the gathered information to determine a minimum payment amount may include establishing a minimum payment amount that is an amount inversely related to the outstanding debt balance of the credit card. The analysis of the gathered information to determine a minimum payment amount may also include establishing a minimum payment amount that is a greater amount if the cardholder's credit history is positive or a smaller amount if the cardholder's credit history is negative. The minimum payment amount is then output to the cardholder (S30) through a billing system, or monthly account statement provided to the cardholder, for example, on-line or through the mail.

FIG. 2 is an exemplary flowchart of one process for determining an optimum minimum payment amount required from the cardholder. As illustrated in FIG. 2, information about the account and/or the cardholder is gathered (step S100). It should be appreciated that any suitable data, alone or in combination, may be gathered.

The gathered information is then categorized (step S200). Exemplary categories include the categorization of the outstanding debt balance into a number of pre-defined debt level ranges and the categorization of credit history into the levels of performance, such as good performer, medium performer, and low performer. For example, a cardholder might be found to have an outstanding debt level of between $500 and $1000 and categorized with a credit history rating or level of medium performer. After the gathered information is categorized, the minimum payment grid is then analyzed to locate the entry in the grid that corresponds to the categorization (step S300). As further described below with reference to FIGS. 4A and 4B, the entries in the minimum payment grid may be used to determine the minimum payment amount to set for each credit cardholder. This minimum payment amount is the amount that the cardholder must pay in order to repay or settle charged debt associated with their account. By categorizing information related to the cardholder and/or account and using the categorization to determine the minimum payment amount, a better estimate of the minimum payment may be made for each individual cardholder. In connection with the embodiment of FIG. 2, a minimum payment grid (such as the grid of FIG. 4B) may be used to directly determine the minimum payment amount from the corresponding entry in the grid. For example, the corresponding entry in the minimum payment grid of FIG. 4B for a cardholder with an outstanding debt level of $500-$1000 and a credit history level of medium performer would be $50.

As indicated above, the corresponding grid entry would be the amount of minimum payment that a cardholder must pay (step S400). Further, as illustrated in FIG. 2, the amount ($50) from the corresponding grid entry may be provided as output and communicated to the cardholder (step S500). This may be performed by the credit card issuer through a billing system or monthly account statement provided to the credit cardholder (for example, on- line or through the mail).

FIG. 3 is an exemplary flowchart of an alternative process for determining an optimum minimum payment amount required from the cardholder. As illustrated in FIG. 3, any suitable information about the account and/or the cardholder, either alone or in combination, is gathered (step S 100)..

The gathered information is then categorized (step S200). Exemplary categories may include the categorization of the outstanding debt balance into a number of pre-defined debt level ranges and the categorization of credit history into levels of performance, such as good performer, medium performer, and low performer. For example, a cardholder might be found to have an outstanding debt balance of $4000, falling into the pre-defined debt level of between $2000 and $5000, and categorized with a credit history rating or level of poor performer.

Following the categorization of the gathered information, the minimum payment grid is then analyzed to locate the entry in the grid that corresponds to the categorization (step S300). The entries in the minimum payment grid may be used to determine each cardholder's minimum payment amount, or the amount that the cardholder must pay in order to repay or settle charged debt associated with their account. In connection with the embodiment of FIG. 3, a minimum payment grid (such as the grid of FIG. 4A) may be used in computing the minimum payment amount based on the corresponding entry in the grid. For example, the corresponding entry in the minimum payment grid of FIG. 4A for a cardholder with an outstanding debt balance of $4000, and thus, an outstanding debt level of $2000-$5000, and a credit history level of poor performer would be 2%. The minimum payment amount is then computed by calculating 2% of the cardholder's outstanding debt balance (step S400). For the cardholder described above, the minimum payment amount would be 2% of $4000, or $80.

As indicated above, the corresponding grid entry would be a percentage. The minimum payment amount may be computed by multiplying the percentage of the grid entry by the amount of the cardholder's outstanding balance (step S400). Further, as illustrated by FIG. 3, the computed minimum payment amount (for example, $80) may be provided as output and communicated to the cardholder (step S500). Again, this may be performed by the credit card issuer through a billing system or monthly account statement provided to the credit card holder.

FIGS. 4A and 4B are exemplary minimum payment grids that could be utilized with a system, consistent with the present invention. The minimum payment grids are analyzed to locate the entry in the grid that corresponds to categorizations of data about the credit card account and/or the cardholder. These categorizations may include the outstanding debt level of the account and/or the credit history level or rating of the cardholder. These categorizations are exemplary, and it should be understood that any number of categorizations could be used. Further exemplary categorizations include the cardholder's income range, the number of open loans held by the cardholder and the number of charged-off loans against the cardholder.

Other categories may include a model indicating whether a cardholder is likely to pay off their debt balance or whether a cardholder is likely to be able to pay a higher minimum amount. This data, as well as other information about the cardholder, may be obtained from credit bureaus. The minimum payment grid entries, corresponding to the categorizations of data about the credit card account and/or the cardholder, may be the minimum payment amount or may be a factor to be used in computing the minimum payment amount, such as a percentage of the outstanding debt balance.

The categorizations that would be used to locate an entry in the exemplary minimum payment grids shown in FIGS. 4A and 4B are account balance or credit limit ranges (such as $200-$500, $500-$1000, $1000-$2000, $2000-$5000, and over $5000) and credit history model of performance (such as good performer, medium performer, and low performer). In FIG. 4B, the minimum payment grid entries are a fixed dollar amount, and thus the minimum payment is determined directly from the minimum payment grid entry corresponding to the categorization of the cardholder and/or account information. In FIG. 4A, the minimum payment grid entries are a percentage. To determine the minimum payment amount, the minimum payment grid entry corresponding to the categorization of the cardholder and/or account information is multiplied by the outstanding debt balance of the account. The entries in the minimum payment grids, as illustrated by FIGS. 4A and 4B, follow a general scheme. All other categorizations being equal, the amount of minimum payment (as determined either directly from the minimum payment grid in FIG. 4B or as computed using the percentage factor from the minimum payment grid in FIG. 4A) will be inversely proportional to the outstanding debt level balance. Referring to FIG. 4A, a cardholder has been categorized as a medium performer. In determining the minimum payment for this cardholder, the percentage of outstanding debt balance that is computed as the minimum payment decreases as the outstanding debt level increases. For example, if the cardholder owes between $200 and $500, the percentage applied is 10%. If, however, the cardholder owes between $2000 and $5000, the percentage applied is 2%.

Similarly, all other categorizations being equal, the amount of minimum payment may be smaller for cardholders with negative credit history levels or ratings and larger for cardholders with positive credit history levels or ratings. Referring to FIG. 4B, assume a cardholder owes between $500 and $1000 on an account. If the cardholder has been categorized as a good performer (a positive rating), the minimum payment amount is $75, whereas if the cardholder has been categorized as a low performer (a negative rating), the minimum payment amount is $40.

It will be apparent to those skilled in the art that various modifications and variations can be made to the invention without departing from the scope or spirit of the invention. For example, other grid or table systems may be used to determine the minimum payment required by each cardholder. Such grid system may take into account other types of financial information related to the account and/or cardholder than that illustrated in the examples of FIGS.

4A and 4B. In addition, in place of a grid or table, computational tools or algorithms implemented with software may be used to calculate the minimum payment from the financial information related to the cardholder and/or account.

Other modifications and embodiments of the invention will be apparent to those skilled in the art from consideration of the specification and practice of the invention disclosed herein. Therefore, it is intended that the specification and examples be considered as exemplary only, with a true scope and spirit of the invention being indicated by the following claims.

Claims

WHAT IS CLAIMED IS:

1. A method for setting a minimum payment amount for a credit card account of a cardholder, said method comprising: gathering minimum payment information; categorizing the gathered information based on indices of a minimum payment grid; locating a corresponding grid entry in the minimum payment grid based on the categorization of the gathered information; and establishing a minimum payment amount based upon the corresponding grid entry.

2. A method according to claim 1 , wherein the minimum payment information gathered includes information related to the credit card account.

3. A method according to claim 2, wherein the credit card information gathered includes the outstanding balance of the credit card account.

4. A method according to claim 1 , wherein the minimum payment information gathered includes information about the cardholder.

5. A method according to claim 4, wherein the cardholder information is gathered from a credit bureau.

6. A method according to claim 4, wherein the cardholder information includes income earned by the cardholder.

7. A method according to claim 4, wherein the cardholder information includes a credit history rating of the cardholder.

8. A method according to claim 4, wherein the cardholder information includes loans that have been charged off against the cardholder.

9. A method according to claim 3, wherein the outstanding balance is categorized into pre-defined debt ranges, which correspond to indices of the minimum payment grid.

10. A method according to claim 1 , wherein each grid entry of the minimum payment grid is a fixed minimum payment amount.

11. A method according to claim 1 , wherein each grid entry of the minimum payment grid is a percentage amount.

12. A method according to claim 3, further comprising establishing the minimum payment amount by an amount that is inversely related to the outstanding balance of the credit card.

13. A method according to claim 4, wherein information about the cardholder is categorized into levels of past credit performance, which correspond to indices of the minimum payment grid.

14. A method according to claim 13, further comprising establishing the minimum payment amount by an amount that is greater for positive levels of past credit performance.

15. A method according to claim 1 , further comprising outputting the minimum payment amount to the cardholder through a billing system.

16. A system for setting a minimum payment amount for a credit card account of a cardholder, said system comprising: means for gathering minimum payment information; means for categorizing the gathered information based on indices of a minimum payment grid; means for locating a corresponding grid entry in the minimum payment grid based on the categorization of the gathered information; and means for establishing a minimum payment amount based upon the corresponding grid entry.

17. A system according to claim 15, wherein the means for gathering minimum payment information includes a means for contacting a credit bureau.

18. A system according to claim 15, further comprising means to provide the minimum payment amount to the cardholder through a billing system.

19. A computer program product for setting a minimum payment amount for a credit card account of a cardholder, the computer program product comprising computer-readable media having computer-readable code, the computer program product comprising the following computer- readable code for effecting actions in a computing platform: program code for selecting and obtaining minimum payment information; program code for categorizing the minimum payment information based on indices of a minimum payment grid; program code for locating a corresponding grid entry in the minimum payment grid based on the categorization of the information; and program code for calculating a minimum payment amount based on the corresponding grid entry.

20. A computer program product according to claim 19, wherein said calculating a minimum payment amount comprises multiplying the corresponding grid entry by an outstanding debt level of an account.

21. A method for setting a minimum payment amount for a credit card account of a cardholder, said method comprising: gathering financial information related to the cardholder and the credit card account of the cardholder; and establishing a minimum payment amount for each cardholder as a function of the gathered financial information.

22. A method according to claim 21 , wherein establishing a minimum payment amount as a function of the gathered financial information comprises: categorizing the gathered information based on indices of a minimum payment grid; locating a corresponding grid entry in the minimum payment grid based on the categorization of the gathered information; and establishing a minimum payment amount based upon the corresponding grid entry.

23. A method according to claim 21 , further comprising determining an outstanding balance of the credit card account from the gathered financial information.

24. A method according to claim 23, wherein establishing a minimum payment amount as a function of the gathered financial information includes establishing the minimum payment amount by an amount that is inversely related to the outstanding balance of the credit card.

25. A method according to claim 21 , further comprising determining a credit history rating of the cardholder from the gathered financial information.

26. A method according to claim 21 , wherein establishing a minimum payment amount as a function of the gathered financial information includes establishing the minimum payment amount by an amount that is greater for positive levels of past credit performance.

27. A method according to claim 21 , wherein the financial information is gathered from a credit bureau.

28. A system for setting a minimum payment amount for a credit card account of a cardholder, said system comprising: means for gathering financial information related to the cardholder and the credit card account of the cardholder; and means for establishing a minimum payment amount for each cardholder as a function of the gathered financial information.

29. A system according to claim 28, wherein the means for gathering financial information includes a means for contacting a credit bureau.

30. A system according to claim 28, further comprising means to provide the minimum payment amount to the cardholder through a billing system.

31. A system according to claim 28, wherein the means for establishing a minimum payment amount for each cardholder includes a minimum payment grid.