2005 is winding down with the annual ritual of frenzied holiday spending, largely aided by credit cards. So, what has the year been like in the fantastic plastic world? Mostly the big news has been about credit card rate increases ... and more increases, and then a few more increases after that for good measure.
The Federal Reserve, after having cut the prime lending rate over a dozen times in a row in previous years, has consistently ratcheted up the cost of borrowed funds over the past 12 months. In fact, 2005 has seen over seven increases, with a total of 12 upward movements in the prime rate since June of last year. And, with continuing news of lower employment statistics coupled with robust retail sales the rate increases will most likely continue into 2006.
This year's prime rate hikes have landed squarely in the pocketbooks of many Americans, since virtually all major credit card issuers employ variable APRs. Only those who are currently enjoying a rate holiday with a 0 percent introductory APR period or those who don't carry a balance from month to month are shielded from the pain of higher interest rates.
An unfortunate nexus of higher rates also formed this year in conjunction with the passing of major bankruptcy reform legislation and the increase of required minimum payments. So not only are Americans getting hit with higher rates, but those who only make minimum payments must double this obligation from 2 percent to 4 percent of what they owe. And the options for getting relief from creditors have dramatically decreased for these unlucky soles.
Other notable events in the credit card arena have centered on the continuing consolidation of the major credit card issuers. Bank of America purchased MBNA, one of the top five issuers, making the soon to be combined company the second largest card issuer behind Citi.
JP Morgan Chase completed its merger with Bank One, placing it in third place in terms of total number of credit card customers and receivables outstanding. The wave of bank consolidations in 2005 even prompted a one-time player in the market to reconsider its decision to stay out of the fray. Wachovia, itself a result of a 2002 merger of First Union and Wachovia National Bank, decided to reenter the card market this year after having sold off most of its credit card accounts to MBNA a few years ago.
A few new product introductions also include the Blink technology offered on many Chase credit cards and the JetBlue Card from American Express. The Chase Blink technology allows the card holder to wave their cards near special readers at participating national retailers to make a credit card transaction.
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