Credit card rates flat as banks look for other ways to boost profits

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.

House committee: Move up credit card law

Lawmakers want to make interest rate restrictions effective Dec. 1, 2009

By Connie Prater

Consumers could be protected from credit card interest rate hikes a little sooner under a measure approved by a key U.S. House committee Thursday.

Members of the House Financial Services Committee passed a bill to speed up implementation of the Credit CARD Act of 2009 by nearly three months, to Dec. 1, 2009. Portions of the law, which restrict interest rate hikes on existing credit card balances and limit fees, are currently scheduled to take effect Feb. 22, 2010. But lawmakers said recent APR and fee increases levied by the major credit card issuers warrant faster enactment of consumer protections.

"Some card companies have publicly stated that they will no longer increase interest rates, but some companies are continuing to do this retroactively on balances," Rep. Carolyn Maloney, a New York Democrat, said during debate on the bill (H.R. 3639). "Some consumers are not only being hurt, they are really being crushed in this economy."

Credit card issuers lobbied hard for delayed implementation because they said they needed time to revamp their card billing, marketing and application systems.

"The CARD Act represents the most sweeping reform of the credit card industry in decades and requires a major overhaul of intricate business practices by card issuers," according to a statement issued by Kenneth J. Clayton, senior vice president for the American Bankers Association trade group.

"Banks are working diligently to implement the CARD Act by next February, as Congress required, but it would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill. Moving up the implementation date will place additional strain on institutions and is likely to further restrict access to credit at a time when consumers, small businesses and the broader economy need it the most," Clayton added.

Lawmakers who opposed faster implementation cited an Oct. 20 letter from Federal Reserve Chairman Ben Bernanke stating a Dec. 1 startup would not give regulators enough time to draft guidelines for the law.

"The regulators and the companies and the different entities that are involved in issuing credit cards and managing credit cards just simply cannot accommodate these changes so quickly. We simply cannot do this in that time," argued Rep. Mike Castle of Delaware. The Republican lawmaker co-sponsored an amendment with Rep. Christopher Lee of New York to require the Federal Reserve to certify that regulators and card issuers can meet the deadline before the measure could take effect. "You simply can't overhaul entire business enterprise systems overnight."

Added Lee: "Attempts to speed up the transition too quickly would ultimately lead to consumer harm." Their proposal failed.

Small card issuers exempt
The committee agreed to allow smaller credit card issuers (those with 2 million accounts or fewer) to keep the original Feb. 22 startup date. Maloney noted that the majority of consumer complaints are about the top issuers -- namely Chase, Bank of America, Citi, American Express, Discover, Capital One and Wells Fargo.

Smaller card issuers, including many credit unions and community banks who issue only 10 percent of credit cards nationally, complained they have limited resources. "They barely have the computer staff and the lawyers to go in the right direction by the original effective date," Democratic Rep. Brad Sherman of California said during debate on the measure.

[I]t would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill.

-- Kenneth J. Clayton American Bankers Association

Gift card measures unchanged
The committee also approved an amendment to allow gift card restrictions in the Credit CARD Act to keep their original August 2010 enactment date.

The Fed is still working on the regulations dealing with credit cards and is just beginning to write the regulations for gift cards," said Sherman. "Gift cards are being shipped now for retailers for sale for the Christmas season. It makes more sense to stick with the original effective date in the legislation already enacted."

The next step
Lawmakers have only about six weeks until the Dec. 1 start-up to gain final approval of the bill. The measure now goes to the full House for a vote. A similar bill must also pass in the Senate and be signed by President Obama before it can become law.

Consumer financial protection agency advances
In other business Thursday, the financial services committee also voted 39-29 to create a Consumer Financial Protection Agency -- a federal watchdog that would focus on protecting consumers from bad mortgage, credit card and student and car loan deals.

The financial watchdog measure must also go to the full House for debate and vote. Lawmakers said they expect it to come up within the next month. The Senate must also consider and pass the plan.

Low credit score? Good luck getting a new credit card, study says

By Andrea Leptinsky

Consumers are getting far fewer credit cards than a year fago and most of the new approvals are going to those with better credit scores, according to new statistics released by credit bureau Equifax.

Fifty-four percent fewer new credit card accounts were opened in July 2009 than the previous July, Equifax reports in its September 2009 Credit Trends Report, released Oct. 13. More than half of those new accounts went to consumers with an Equifax Risk Score higher than 740. That's nearly double the percentage from July 2007. During that same period, the percentage of new cards issued to consumers with credit scores lower than 660 dropped by almost half, to just over 22 percent. (The Equifax Risk Score can range from 280 to 850, similar to the better-known FICO score's range of 300 to 850.)

The credit bureau's report offers further proof that a move to become stricter with card approvals, initiated when the recession began in 2007, is still under way. The challenges facing the credit industry -- including the onset of the economic recession and the enactment of sweeping pro-consumer reforms -- have forced issuers to re-evaluate their business practices.

"We have taken a number of actions to maintain our credit quality," says Mai Lee, spokeswoman for Discover Financial Services. "These actions include ... suppressing credit line increases on high-risk accounts and investing in proactive risk management and operational practices." Discover is also eliminating some long-term inactive accounts in order to reduce its contingent loan exposure, Lee said. Other major issuers have made similar moves, including increasing APRs and changing cards from having a fixed interest rate to a variable rate.

Taking things too far?
Some are concerned, however, that issuers' moves are becoming too extreme. Testifying before the Senate's Subcommittee on Financial Institutions on Oct. 14, Federal Reserve Gov. Daniel K. Tarullo cautioned issuers against taking things too far and becoming too controlling in their tactics for assessing borrowers' ability to pay.

"The Federal Reserve has directed examiners to be mindful of the effects of excessive credit tightening in the broader economy," he said. "We are aware that bankers may become overconservative in an attempt to ameliorate past weaknesses in lending practices, and are working to emphasize that it is in all parties' best interests to continue making loans to creditworthy borrowers."

Although issuers are being more mindful of who they offer cards to, consumers are also saving at a higher rate, paying off more of their debt -- and eliminating their own unnecessary lines of credit before issuers have a chance to do it for them. The result of belt-tightening by consumers and issuers: The number of credit accounts active in the United States has dropped by 88 million since September 2008 and credit lines have been reduced by $751 billion, according to Equifax.

"The data reflect an economy in transition with consumers doing better with their financial management, but with many still struggling in the face of high unemployment and restricted credit," says Dann Adams, president of Equifax's U.S. Consumer Information System, in a statement. "Consumers are conserving cash and reducing debt across the board. We haven't seen savings rates this high since shortly after the third quarter of 2001 -- just after 9/11."