The past three years have been volatile for credit card issuers and users given the recession, consumer deleveraging, and new Credit Card Accountability, Responsibility, and Disclosure (CARD) Act regulations.
Next year will have smaller, more subdued changes as credit card issuers find ways to manage risks, add new accounts, and increase revenue, while cardholders continue to pay down their balances and possibly use alternative forms of payment, according to Bill Hardekopf, CEO of LowCards.com.
He makes these credit card predictions for 2011:
1. APR increases
A significant number of restrictions have been placed on issuers during the past two years, which has had a dramatic effect on their revenue. Due to the CARD Act, issuers can’t increase the annual percentage rate (APR) on accounts during their first year unless there are some unique circumstances.
Therefore, issuers have increased the APR on new accounts. The average advertised APR of all credit cards issued in the U.S. before the CARD Act went into effect was 11.64%. In December it was 13.8%.
2. Delinquencies will continue to fall
Many delinquent accounts have been written off since their peak in the first quarter of 2009. According to TransUnion, 1.21% of all credit cards were 90 days or more past due at that ime.
The company expects card delinquencies to fall to 0.75% by the end of 2010 and 0.67% by the end of 2011.
3. More offers in the mail
Issuers will increase the number of solicitations, especially for people with excellent credit.
During the second quarter of 2010, U.S. households received 640.3 million credit card offers, an 83% increase over the 349.1 million offers mailed during the same period in 2009. Chase, the largest mailer, quadrupled its mailings during this time, and Citibank nearly tripled its mailings.
Synovate estimates that lenders will have sent about 2.5 billion credit card offers by the end of 2010. While this is much lower than the six billion offers sent in 2005, the peak year, it’s a significant increase that’s expected to continue.
Next: Lending standards will loosen slowly
4. Lending standards will loosen slowly
As the economy improves, issuers will find ways to re-define which consumers are “higher risk.”
They’ll slowly widen the lending circle and include people who may have had problems affecting their credit scores but who can still pay their bills.
5. Credit card debt will start to rise
The latest Federal Reserve Consumer Credit report showed credit card debt fell for a 26th-consecutive month as Americans paid down debt and issuers cut credit limits and eliminated high-risk accounts.
As credit card issuers start to loosen lending standards, more higher-risk consumers will be approved for credit cards, and consumers with higher credit scores may see their credit limits increase.
6. Bigger rewards for spending
Issuers will expand awards to attract new customers. They’re now using bonuses to encourage spending.
Discover More and Chase Freedom cards offer $100 spending bonuses for new applicants who reach set spending limits: $500 within three months for Discover More and $799 within three months for Chase Freedom.
Most cards will continue to offer these rewards without annual fees. However, some issuers are introducing new cards with “super-sized rewards” to attract big spenders to cards with an annual fee.
The Citi ThankYou Prestige Card, for example, comes with an annual fee of $500. Cardholders can earn one point for every dollar spent on eligible purchases and 1.3 points per dollar spent for everyday purchases at gas stations, supermarkets, drugstores, parking merchants, and for commuter transportation.
Citi also has a ThankYou Premiere Card with a $125 annual fee. Customers earn 1.2 points for every dollar spent on purchases at supermarkets, gas stations, and drugstores, and one point for every dollar spent on all other purchases.
Next: New prepaid cards
7. New prepaid cards
The recession, credit card regulations, and stricter lending standards have created new interest in prepaid cards. In some ways, prepaid cards are trying to fill the void created by the CARD Act for credit cards for teenagers and young adults.
These regulations made it difficult for those under age 21 to get credit cards. Any teenager (with a parent’s permission) can get a prepaid reloadable card.
8. Longer introductory periods for balance transfers
When the economy turned south, issuers cut attractive balance transfer offers, reducing some to as little as three months. But a big shift has occurred in 2010 as more issuers have increased the time period of these 0% offers.
Many now offer 0% interest on balance transfers for 12 months. This trend should continue into at least the first half of 2011.
9. The Fed may raise interest rates
Rates can’t stay at record lows forever. When increases do occur, it will have a corresponding effect on most credit cards’ APR.
During the recent economic downturn, many credit card issuers converted their remaining fixed-rate cards to variable rates tied to an index such as the prime rate. So when the prime rate goes up, those variable-rate cards will show a corresponding APR increase.
10. Payments via smart phones
This could be the year that consumers wave their smart phones at cashier readers to make payments. Smart phone manufacturers, credit card companies, and Google are testing mobile payment systems, and there may be an expansion in 2011 with this form of payment.
More individuals and small businesses will also use programs like Square to accept credit card payments from their mobile phones.