Credit card interest rates unchanged for 2nd straight week

Issuers return to their traditional, seasonal lull

By Kelly Dilworth

Credit card interest rates remained unchanged this week as banks held off on testing new card offers during a traditional, seasonal lull.

The average annual percentage rate (APR) on new credit card offers held steady at 14.73 percent on Wednesday, according to CreditCards.com's Weekly Rate Report. This week marks the fourth time since the beginning of the year that card offers have remained unchanged. None of the card issuers that CreditCards.com tracks made APR moves this week, and all but one left promotional offers alone as well.

This year's relative lack of movement on offers for new cardholders is a significant departure from most of 2010 when card issuers tested rates more often. Since the beginning of 2011, the national average has hovered just above 14.7 percent, and it hasn't declined once since the beginning of the year. This year's rate increases have also been notably small.

Experts say that lack of movement on card offers isn't unusual for the first two months of a new year. Credit card issuers, they said, generally shy away from making major changes until they are done with strategizing on offers.

"Historically, seasonality has always played a big role [in card offers]" said Anuj Shahani of the market research firm Synovate. Shanahi said that in Synovate's 20-year history of tracking credit card mailings, the first two months of the year have always been fairly slow. That is, they were until the credit crisis hit in 2008, and banks began experimenting with credit card offers at a more frequent pace to keep up with the historic changes.

According to CreditCards.com data, 2008 through 2010 saw near-constant weekly movement on card offers throughout the year, including in January and February. However, experts say that this was more than likely the result of the cataclysmic economic and regulatory changes that defined those three years, including the Credit CARD Act of 2009.

Shahani predicts that as the dust finally begins to settle in 2011, we'll see a more familiar trend on offers. "We're back in a normalized world, and things are going back to how they were previously," said Shahani. He expects that changes to card offers will begin to pick up again around March once banks are done with their annual planning.

Josh Frank, a senior researcher at the Center for Responsible Lending, agrees that the pace of changes that we have seen in recent years were likely related to historic "volatility" in the market. Now, "maybe it's not so volatile," said Frank.

According to Frank, changes to card offers tended to last longer in the years before the credit crisis shook the industry, and frequent changes were relatively unusual. Frank used to work in the credit card industry himself, he said, and his employer often took its time with testing new card offers. "Our policy as a large issuer was that we would do a lot of testing for a card offer, and we would stick with that offer for the year," said Frank.

However, few issuers stuck to this policy in the past three years, according to CreditCards.com data. Rates increased significantly throughout the recession and particularly in the last year.

However, there's a silver lining to that data, says Frank. He wrote a report for the Center for Responsible Lending that found that although rates appear to be high, cardholders aren't necessarily paying more than they were before.

That's because the CARD Act forced card companies to be more transparent on pricing. "People mistake higher rates on mail solicitations and other offers in the last year as a price hike," said Frank in a summary of the report. "But the facts show that offers now just more closely match actual costs. Prices have been level, but borrowers have a much better picture of what those prices are."    

Major provisions of the CARD Act went into effect in February 2010. Before that time, card companies would often offer one rate and then increase it later -- leading to a big difference in what people expected to pay and what they actually paid. Now, "the gap between what people pay and what people see on offers has narrowed to almost zero," said Frank, because card issuers are forced to be more transparent.

As a result, you may see a new card offer in your mailbox with an APR of 14.73 percent. However, you are less likely to pay more than your card offer advertises.

See related: Study: U.S. credit cards more transparent after new law, A guide to the Credit CARD Act of 2009

Published: February 16, 2011

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