Retail cards 2010: Higher APRs, reduced rewards
A stabilizing economy could mean future relief from interest hikes
carried a balance on a retail credit card in 2010, chances are you spent more
money on your purchase than you would have last year, as retail card issuers
have been increasing annual percentage rates (APRs) while making rewards
programs a little less friendly.
CreditCards.com surveyed 36 retailers' credit cards in
the summer of 2010, and of those cards, half of them had higher APRs than in 2009.
Of the issuers that offer both co-branded and non-co-branded cards, the
non-co-branded cards typically had the higher rates. Co-branded cards are cards
that are sponsored by both the retailer and an issuing bank as opposed to just
the retailer (non-co-branded) issuing the card.
(See CreditCards.com 2010 retail credit card chart.)
cards had APRs of 23 percent or higher, compared with only 11 in 2009.
Since so many retail credit cards have APRs nearing the 25
percent range, it's more imperative than ever that consumers be able to pay for
items as quickly as possible. "When you
go to make a purchase on credit, know what the true cost is going to be if you
don't pay it off right away," says Melinda Opperman, senior vice president of community
outreach and industry relations for Riverside, Calif.-based Springboard
Nonprofit Consumer Credit Management.
One incentive that gets many consumers
to apply for a retail credit card in the first place is the rewards program
offered by the issuer. "There are opportunities where you can get a discount
for using that particular card," says Opperman. However, the 10 percent or 15
percent savings can easily be negated by interest if consumers carry a balance,
particularly on cards that have an APR in the 20 percent range.
Some retail card issuers have cut back on their rewards
programs, or made the requirements more stringent for consumers to redeem
rewards. For example, Sears and Kmart, which award points for purchases, last
year let consumers earn travel discounts once they received 10,000 points and a
round trip flight at 25,000 points. In 2010, consumers needed 13,000 points to
begin getting travel discounts and 49,200 points to earn a round trip. The
Credit CARD Act also impacted the rewards offerings of some retail cards since
rules restricting how retailers can advertise deferred interest plans have led many retailers to rein in
no-interest, no-payment deals.
A perfect storm
"There's been a fairly industrywide upward movement in
APRs," says John Grund, a partner with First Annapolis, a Linthicum, Md.-based
consulting firm that advises banks and retailers on their credit card
offerings. "That, I think, is the result of a triple whammy -- the global
credit crisis, the recession and the Credit CARD Act of 2009."
No one knows officially where the
tipping point is for APRs, but for the most part we are expecting more stability
going forward than we've certainly seen in the past 24 months.
|-- John Grund
credit crisis and recession led to an increased number of charge-offs, as
laid-off and cash-strapped consumers fell behind on payments. They also scared
many consumers into keeping cash in their pockets and avoiding using retail
cards, commonly referred to as private label cards. "Clearly
consumers shied away from buying big-ticket, durable goods, which are very
conducive to the private label product,"
credit card issuers also grappled with a blow to their image. "You can't
ignore the fact that there has been a ton of negativity surrounding credit
cards in general," says Grund. Take Angela Winston, a 38-year-old schoolteacher
in Gaithersburg, Md. "I used to use store credit cards, but now I think for the
most part, they're a rip-off," Winston says, citing the high interest rates.
Though she has one retail credit card that she pays off each month, Winston has
no intention of applying for others "because I don't want to get into any more debt,"
CARD Act caused its share of problems for card issuers, mainly by placing
limitations on fees and APRs. The result of all of these changes led to a
decrease in profitability for issuers. Those issuers responded by raising their
rates and tightening their credit requirements, Grund explains.
A turning tide
while issuers have faced a challenging environment during the last couple of
years, signs show that things may be improving.
one can deny that 2010 brought more costly credit. But with the economic climate
for card issuers improving, have consumers seen the last of the interest rate
to Fitch Ratings' Retail Credit Card index, in July, late payments fell for
the fifth consecutive month. Not only that, but there were fewer defaults for
the second straight month and both late stage delinquencies and charge-offs
"The economy doesn't have many bright
spots, but there is a general belief that the recession has bottomed out or is
in the process of bottoming out," says Grund.
are also turning to their credit cards again. According to global market
research firm Synovate's Mail Monitor, which tracks credit card solicitation
and response rates, American households with credit cards have spent on
average $1,559 across all the cards in 2010, which is up 6 percent over all of
bit of good news for retail card issuers is the fact that the CARD Act has been
fully implemented. "Now that the third leg of the Card Act is enforced, there
has been an element of uncertainty that has now been removed from the
equation," Grund adds. As a result, card issuers aren't as likely to raise rates
or change terms in anticipation of unknown consequences.
"No one knows officially where the
tipping point is for APRs but for the most part we are expecting more stability
going forward than we've certainly seen in the past 24 months," Grund says.
See related: CreditCards.com 2010 retail credit card chart, 6 tips to use store credit cards wisely, 4 reasons you should get a department store credit card, Just say no to store credit cards, No payments, no interest -- not anymore!
Published: September 14, 2010
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