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Rate survey: Credit card interest rates nose upward

First increase in 6 weeks could point to a 'new normal'

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Interest rates on new credit card offers ticked upward this week after five straight weeks of no movement, according to the CreditCards.com Weekly Credit Card Rate Report.

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.93%
14.91%
15.19%
Low interest 10.40%
10.40% 10.84%
Balance transfer 12.46%
12.43%
13.00%
Business 12.75%
12.67%
13.13%
Student
13.77%
13.77%
13.77%
Cash back  14.24%
14.24%
14.86%
Airline  14.63%
14.63%
14.54%
Reward 14.73%
14.70%
14.86%
Instant approval 15.49%
15.49%
15.49%
Bad credit 23.64%
23.64%
24.96%
Methodology: The national average credit card APR is comprised of 100 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: May 23, 2012

The national average annual percentage rate (APR ) on new card offers rose to 14.93 percent Wednesday from 14.91 percent.The uptick was spurred by two modest rate increases on two of the 100 cards in the CreditCards.com national database of popular credit cards.

The rate increase ended an unusually lengthy period of rate inactivity. The last time interest rates remained unchanged for this long was in the spring of 2011.

In addition to the rate increases, card issuers also made a flurry of changes to other promotional terms on new card offers this week. All were minor, with card issuers stretching a balance transfer period here, adding a few dollars to an annual fee there.

The long inactivity followed by mild tinkering could mean cards issuers have finally adjusted to a new normal following two events that shook them to the core: the recession and a sweeping federal credit card reform law.

We're coming up on four years since September 2008, when the financial industry was just a federal bailout away from collapse. The recession that accompanied the Wall Street flame-out upturned the financial industry -- including the giants that issue the most popular credit cards. Sharply tighter standards for getting credit was one result.

And three years ago this week, on May 22, 2009, President Obama signed into law the most far-reaching package of regulations to ever hit the industry: the Credit CARD Act of 2009.

Prompted by one, the other or both events, credit card interest rates rose in the years following. When President Obama signed the act into law, the average rates offered on a new credit card stood at 12.38 percent. The 14.93 percent figure of today is 20 percent higher.

Moshe Orenbuch, a card industry analyst with Credit Suisse Group AG bank, says in the three years since the CARD Act was signed, credit card interest rates have gone up in general. He adds: "Some of that was masked by the fact that [prime] interest rates fell so much."

Since 2009, "Total credit lines outstanding have fallen. They took credit away from riskier customers," Orenbuch notes.

Nessa Feddis, vice president and senior counsel for the American Bankers Association, said it's difficult to separate what happened to credit cards from what was happening in the economy. "Part of it is the economy and part of it is the CARD Act," Feddis says. While the economy was reeling, banks constrained credit and were cautious about who got approved for new accounts. "Card issuers are continuing to be cautious," Feddis says. "But as they've adjusted to the economy and to the new business models because of the CARD Act, we see them reaching out a little bit more and testing the waters."

Consumers are reaching for their cards, too. Federal Reserve data on consumer credit released early in May showed a sharp jump in credit card use.

Credit "has been tight but it's easing now," says Dennis Moroney, research director for the Tower Group, a card industry consulting firm. "You have an increase in demand, but also an easing" of lending standards. "It still doesn't mean it's easy to get a credit card.

"It's tough."

 See related: Credit card protection plans draw state lawsuits, federal scrutiny

Published: May 23, 2012


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