Credit card rates' ascent shows no sign of slowing
It just keeps getting more and more expensive to be a credit cardholder -- and analysts say there's little relief in sight.
|CreditCards.com's weekly rate chart|
|Avg. APR||Last week||6 months ago|
|Methodology: The national average credit card APR is comprised of 95 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.)|
Annual percentage rates on new credit card offers shot up to 12.79 percent this week, according to the CreditCards.com Weekly Credit Card Rate Report. This is nothing new, however. Banks have adjusted their offers over recent months -- including raising APRs -- in search of profits in the face of rising unemployment, increased regulation and other economic uncertainty.
Things aren't expected to get any better anytime soon. The latest Wall Street Journal survey showed economists expect unemployment to hit 10.2 percent by the end of 2009, and remain above 9.5 percent during 2010. The threat -- or reality -- of job loss makes cardholders less able to repay their card balances.
Factor in the APR restrictions and the implementation costs that come with the Credit CARD Act -- sweeping, pro-consumer industry reforms that take effect for the most part in February 2010 -- and banks are scrambling.
"Banks are concerned both about rising losses on the credit card portfolios themselves and their general profitability," says Alan White, a law professor at Valparaiso University in Valparaiso, Ind. "Since credit cards have been a large contributor to profitability, the lenders are trying to find profitability any way they can."
That means cardholders are paying more for the privilege of carrying plastic. Over the past six months, CreditCards.com's national average has increased steadily. On Monday, the Federal Reserve's quarterly survey of senior loan officers showed that 30 percent to 40 percent of banks cut credit limits, boosted APRs or both on customers in the third quarter. This week, several card issuers, including Chase and GE Money, raised APRs on their products.
Meanwhile, banks have also eliminated some card offers, forcing some reshuffling of our CreditCards.com database. In order to maintain a representative sample of card offers from major banks around the nation, we've added new cards, many of which have higher APRs than those they replaced.
In response, consumers are relying less on credit. "The anecdotal evidence is people are buying things with debit cards instead of credit cards," White says. Recent data bears that out: A recent Fed report shows that consumer credit card balances have fallen by $86 billion in the past year. As consumers scale bank their use of credit, banks may raise APRs to make up for lost revenue. Banks are "pricing to reflect that debt levels are coming down," White says.
It's not easy to know when that repricing will end. Amid the economy's problems and consumers' own struggles, White says there isn't a clear finish line for accelerating APRs.
Before banks can press the pause button on rate hikes, "there were a lot of things that were out of kilter running up to the [economic] crisis that need to rebalance themselves," White says.
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