This is a guest post by Mr Credit Card from www.askmrcreditcard.com, which is an online credit card review site.
Today, Mr Credit Card is going to be updating us about credit card developments in the US.
Well, the credit crisis started in the US. So right now, I’m going to provide an update on recent trends and developments in the credit card world in good old USA.
Reduced payouts on Cash Back Credit Cards
A couple of years ago, credit card issuers in the US were falling over one another offering consumers lots of great deals. For example, Citibank had a card called the Citi Dividend Card that paid 5% cash rebates on gasoline, supermarket and drugstore spending. Chase had a card called the Chase Cash Plus which had identical features.
Then Chase realised that it was not a profitable proposition because cash back card holders were savvy consumers are paid their bills in full, but took advantage of the rebates they earned. So they renamed their card the Chase Freedom Card and reduced their payout to 3%. The Citi Dividend then followed but reduced their payout even more. They reduced it to 2%! Just last year, Chase finally reduced their rebates to 1% across the board for the Freedom Card. Citi did away with the Dividend Card and replaced it with the Citi Professional Cash Card, which essentially is a 1% card.
Only American Express and Discover Cards have been consistent with their cash back credit cards offers in that they have not changed their cards and rewards around.
No More Great 0% Balance Transfer Deals
Up to a year and a half ago, there were dozens of offers from credit card issuers dangling 0% balance transfer deals to consumers and waiving any balance transfer fees at the same time. The hope was once someone signed up, they would stick with the card even after the deal expired and interest rates returned to normal. Well, consumers were actually very smart and kept churning their cards looking for the next deal once their present one expired.
Slowly, but surely, credit card issuers here charging a fee for doing a transfer, but capped it to about $50. Then they raised the cap to $75, and then to $99 (some even at $250). Finally, most have removed the caps altogether. Now, there are very few 0% balance transfer deals which last 12 months (you can check out our balance transfer credit cards offer page). The list is very short and used to be very long!
Exorbitant Interest Rates on Some Cards
With the global economy in shambles and consumer credit card default rates rising, credit card rates available to consumers have also crept higher. In the sub-prime sector, Tribute Credit Card actually has rates at 25%! But then, I saw that Capital One has a card with 35% rates there in the UK on this site’s UK credit card comparison page.
Credit Lines Reduced
As credit card default rates rose, credit card issuers started to pull credit cards from inactive accounts and also started reducing credit lines from people who have always paid their bills on time and even with fantastic credit scores. The impact on this is felt by consumers because not only are their credit lines reduced, but their credit scores are reduced as well because in the US, credit utilization (i.e. credit used divided by lines available) is an important factor in the computation of credit scores.
American Express also started reducing credit lines based on where you shopped. My inside sources at Chase acknowledged that they have been reducing credit lines for inactive accounts.
Scaled Back on Marketing
Many issuers have also drastically scaled by on marketing. You see fewer ads on TV. Less direct mail is being sent out, which probably means less annoyance for consumers. A few issuers like Bank of America, Capital One have stopped marketing their credit cards online with other websites. Citicards have also scaled back on their marketing efforts given the uncertainty within their bank!
Credit Card Reform Act of 2008
One of the good things that happened in 2008 in the US is the Credit Card Reform Act. The Act specifically prevents common abuses heaped on by credit card companies. Below are a few examples:
- Card issuers could not use the widespread practice of charging higher interest rates on balances incurred before a rate increase went into effect. This practice happens in balance transfer deals when the card charges you a higher interest rate on charges you make that are not part of the balance transfer
- Credit card issuers cannot change credit card agreements while they are in force without specific written consent from the cardholder. This will stop credit card issuers from giving themselves the right in cardholder agreements to increase interest rates and fees at any time, for any reason unless the consumer has been late in their payments which can trigger a jump in interest rates.
- Credit card issuers cannot increase a cardholder’s interest rate based on adverse information relating to other creditors they find on the consumer’s credit report. In the US, this is called "universal default clause". An example would be that you forgot to pay your auto loan bill on time. It is reported in your credit report and the credit card issuer gets wind of this information and increases your rate even though you have always been on time with them.
- Card issuers would be required to limit penalty interest rate increases to 7 percent above the previous rate if a consumer fails to make a payment on time.
- Issuers are prohibited from charging late fees on payments that have been postmarked by a designated date. Credit card companies used to simply charge late fees if they receive the cheque a day late even though you have posted it before the due date. They effect was to force consumers who did not pay their bill electronically to send their check way in advance before they were due.
What about 2009
Despite my optimistic nature, I suspect 2009 will see a further tightening in credit standards by credit card issuers in the US. I would not be surprised to see more credit cards charging annual fees again.
