By Jeremy M. Simon
Interest rates may be flat, but don't cheer yet: Banks are simply shifting their money-making strategies, experts say.
| CreditCards.com's weekly rate chart | |||
|---|---|---|---|
| Avg. APR | Last week | 6 months ago | |
| National average | 12.61% | 12.60% | 12.42% |
| Business | 9.69% | 9.69% | 16.74% |
| Low interest | 11.91% | 11.92% | 12.39% |
| Cash back | 12.36% | 12.36% | 13.90% |
| Reward | 12.76% | 12.76% | 12.37% |
| Instant approval | 13.32% | 13.32% | 11.49% |
| Balance transfer | 13.46% | 13.10% | 10.99% |
| Airline | 13.60% | 13.60% | 14.44% |
| Bad credit | 14.29% | 14.29% | 11.79% |
| Student | 14.45% | 14.45% | 14.90% |
| Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.) | |||
| Source: CreditCards.com | |||
| Updated: 10-22-2009 | |||
According to the CreditCards.com Weekly Credit Card Rate Report, the national average credit card APR rose just slightly to 12.61 percent this week, although the change was due to some reconfiguration of card offers in the database rather than any rate hikes by lenders.
Despite a slowdown in APR increases, analysts warn that cardholders could still end up paying more. "You may get a pause in rate lifts and a move more toward testing fees" on credit cards, says Elizabeth Rowe, director of banking advisory services with Mercator Advisory Group in Maynard, Mass. "It's not a pause in activity -- it may just be a pause in strategy."
Rowe says that the ongoing earnings season -- when companies announce their quarterly results -- combined with continued scrutiny from regulators, consumer advocates and the media, may also discourage banks from raising rates at this time. "Banks are already so high profile at the moment that the last thing they want to do is bring in one more thing to be negatively assessed. And that negative thing would be what they are doing with credit card rate and fee schedules," she says.
Some banks are touting their efforts to take the high road. Bank of America, Discover and Capital One have pledged to not raise interest rates ahead of the Credit CARD Act. That law will make it tougher for banks to make such moves.
That doesn't mean issuers are being generous, however. Capital One, Citi and U.S. Bank this week eliminated introductory APRs on several cards.Those intro APRs offer cardholders a chance to make card transactions at lower rates for a set period of time.
Meanwhile, a report on economic conditions around the country also shows that money isn't always reaching borrowers. The Federal Reserve said loan demand remained "weak or declining" in many areas of the United States.The Beige Book survey of regional Fed banks showed that loan demand was "reported as stable or declining by New York, St. Louis and Kansas City," while Cleveland said consumer lending was "flat or reduced." The Fed also acknowledged that rising consumer delinquencies were "often noted."
As job losses continue, consumers' difficulty with making card payments is hurting banks. J.P. Morgan said its credit card business lost $700 million in the third quarter of 2009, with even deeper losses expected next year. On Oct. 16, Bank of America said its credit card devision has posted five straight quarterly losses totaling $4.7 billion, although card delinquencies slowed in the third quarter. During a conference call, BofA's chief financial officer said the bank continues to be "cautiously optimistic that delinquency trends signal a stabilization in losses," Bloomberg.com reported.
Following BofA's most recent quarterly loss, the bank's chief executive told analysts that it has "a lot of people looking at the business and looking at the changes that need to be made both in infrastructure and other ways we can make money."
But with consumers' tax dollars already used to prop up troubled banks, Rowe says that it would look bad for card issuers to be seen mistreating what are essentially their shareholders through increasingly costly credit cards.