Credit card companies battered and abused credit credit users throughout 2009 — raising interest rates, cutting available credit and closing the cards of millions of credit card users — as they rushed to raise profits before the start of the Credit CARD Act on February 22, 2010.
Now that we’re just about a month away from the start of the CARD Act, I contacted three key credit card websites to collect their predictions for the credit card market in 2010. Those contacted include Bill Hardekopf, CEO of LowCards.com, Ken Lin, CEO of Credit Karma, and Odysseas Papadimitriou, CEO of CardHub.com.
Each had their own predictions, but I’ve narrowed down their thoughts to the five key predictions for what they expect will happen in the credit card industry this year. Drum roll please …
1. Fees, fees and more fees
You’ll find more credit cards will be offered that come with an annual fee. “Currently, only about 20% of the credit cards have annual fees,” Hardekopf said, “but we are seeing more and more cards introduced with an annual fee. And we are seeing issuers like Bank of America assess an annual fee of $29 to $99 on some of their existing customers.”
He also expects increases in existing fees. For example, balance transfer fees have been increased from an industry standard of 3% to 4% (Bank of America) and even 5% (Discover), Hardekopf thinks more issuers will follow. Cash advance and foreign transaction fees could continue to go up as well.
New fees may also be added to cards. “We’ve seen inactive fees added by some issuers where you get assessed a fee if your card has no activity for 12 months or, in some cases, if you don’t purchase a certain amount on that card over a 12-month period,” Hardekopf added. He’s also seen $1 “processing fees” added by an issuer for a paper statement.
2. Rate hikes and account closures will slow, but fixed rates will disappear
Both Lin and Papadimitriou predicted that rate hikes will slow thanks to the CARD Act. Lin also added that consumers will see huge wins with the elimination of universal default (credit card companies used to be able to raise your interest rate even if you paid on time if you were late on another card — in 2010, they can’t), thanks to the CARD Act.
“Most credit card companies have already changed their terms before the act takes full effect in February so consumers won’t see the rate hikes and minimum payment increases as frequently in 2010,” Lin said, “As we look to 2010, creditors will be competing for the best customers as the economy improves. We should see new features and more competitive pricing for excellent credit consumers. Consumers with marginal credit will see less credit [available to them] in the marketplace.”
Hardekopf predicted that the remaining cards with fixed rates will be changed to variable rate cards. “There aren’t many fixed rate cards left since issuers have moved most of them to variable rates,” he said. “Those that do remain will probably be switched to variable rates before the CARD Act goes into effect.” Hardekopf said the key reason for this prediction is that the variable rate cards can continue to increase your APR if the index used starts to increase. So if the variable rate card uses the prime rate and the prime rate goes up, that increase can be passed on to the cardholder even after the interest rate provisions of the CARD Act take effect
3. Secured credit cards will make a comeback
Both Lin and Papadimitriou predicted that secured credit cards will make a comeback in 2010. Under the CARD Act, consumers under age 21 who want to apply for a credit card account will either have to show proof of income or obtain a cosigner in order to be eligible for the account. Without one of these two options, secured cards will be the only option for consumers between the ages of 18 and 21 who want a credit card.
4. Spending will increase, saving will slow
Throughout 2009, consumers were much more careful about their spending and improved their savings levels. In fact, consumers reduced their budgets in every facet of their daily lives.
But Lin predicts that consumer spending will increase. He’s seen, through Credit Karma research, that consumer credit card debt increased 4% in November. The U.S. Commerce Department reported that spending rose 0.7% in October.
Lin also pointed out that the Reuters/University of Michigan consumer sentiment index jumped to a reading of 73.4 in December 2009 from a final reading of 67.4 in November. The increase was largely due to an improvement of consumers’ assessment of current conditions, with the current conditions index jumping to 79.1 in December from 68.8 in November. With this increase, the index rose to its highest level since March of 2008.
In the past two years, the savings rate increased dramatically from 1.5 % in 2007 to an all-time high of 6.9% in June 2009, according to the U.S. Commerce Department. The current savings rate is 4.6%.
“Many consumers delayed purchases in 2009,” said Lin. “Many want good news, and I think with consumer confidence on the way up, 2019 will show increasing consumer spending and less saving.”
5. Credit scores will stabilize
Lin also predicts that credit scores will stabilize in 2010. Credit Karma saw a drop of just 5 points over the past year. “I think many people really started to get a handle on their finances in 2008. They started to pay attention to how their credit was affecting them,” Lin said.
The biggest change for consumers in 2019 could be the passage of legislation to create the Consumer Financial Protection Agency. The legislation has already passed the House and is waiting for passage in the Senate. The agency would have oversight of all credit cards, debit cards, consumer loans and credit reporting agencies, as well as many other financial services.
Lita Epstein has written more than 25 books including The Complete Idiot’s Guide to Improving Your Credit Score and The Complete Idiot’s Guide to Personal Bankruptcy.