The benefits of stricter credit card regulations appear to have come without the predicted drawbacks — at least so far.
It's been nearly six months since a sweeping law changed how credit card companies are able to hike interest rates, charge over-the-limit fees and apply payments. Because the tighter regulations cut into several profit centers, banks were widely expected to replace lost revenue by bringing back annual fees, cutting expensive reward programs and doing away with limited time, ultra-low rates for new customers.
But data suggests none of those things has happened.
The number of new credit card offers has leaped from the lows hit during the recession, and the offers landing in mailboxes don't reflect the predicted changes.
In fact, annual fees are less common. According to marketing consultant Mintel Comperemedia, 28 percent of mailed offers in the second quarter had annual fees, down from 33 percent a year ago.
There's also been little change in rewards programs, which still come with 80 percent of card offers, Mintel found.
Short-term introductory rates, commonly called teaser rates, have actually increased to 56 percent of offers, from 37 percent a year ago. Many of these offers are made at zero percent, and in some cases that rate lasts for as long as 16 months.
"I think some of the doom and gloom speculation from a year ago was probably exaggerated," said Andrew Davidson, Mintel senior vice president. While card companies have been forced to change some of their terms, he suggested these figures show they have been able to navigate the new law without most of the predicted consequences
Fear of losing customers may have kept some banks from making drastic changes. "It's still a very competitive environment out there," said Doug Miller of Corporate Insight, a consulting firm. "Certainly no firm has anything approaching a monopoly for issuing cards." Some banks may worry that they'll lose customers to other issuers if they institute fees across all of their cards, he said, or may have been wary of generating more negative publicity.
Still, some say it's just a matter of time before credit card companies respond more fully to the new regulations.
"It's little early in the game," said Brian Riley, research director for bank cards at TowerGroup, a financial services advisory firm. He noted that banks have been occupied with adjusting policies to meet the requirements of the card law and handling billions in unpaid debt they've had to write off in the last two years. Add hits to profits written into the financial overhaul law and banks will have to find ways to make up the difference, he said.
When the banks make changes it will probably be dramatic, Riley said, because they'll have to make up for some lost time. He suggested it will be the first quarter of 2011 before it's clear what the card market will look like. "I don't think any issuer wants to react too quickly right now."
Moreover, overall mailed offers, although above a year ago, are still well below their levels before the recession. That's because banks are still cautious about lending to all but the best credit risks. Most deals are going out to people with excellent credit — or "superprime" credit scores, according to Anuj Shahani, director of competitive tracking services at Synovate, which tracks mailed offers.
Synovate defines superprime consumers as having credit scores of 760 or higher — about 35 percent of the population, according to figures recently released by FICO Inc. All told, 73 percent of mailed offers went to this segment of the market, which is considered low risk and has more credit options.
And while some of the signs are positive for consumers, one big change observers are noting is a spike in interest rates. The Pew Trust found that advertised rates for purchases increased to 20.99 percent in March 2010, from 12.99 percent in December 2008, when it started collecting data.
Another change, which may be less obvious to many consumers, is an increase in the fees for transferring balances from one card to another. Banks added the fees a few years ago and typically charged up to 3 percent. Those fees have been hiked to 4 and 5 percent in most cases, which could wipe out much of the savings connected with transferring a balance.
Nick Bourke, the Pew Trust's credit card project director, said there is some evidence that card companies are taking time to respond to regulatory changes.
"I do think it's natural and expected that we could see this industry evolve over time," he said. "I think we'll see new changes being tested. Some will stick and some won't. It's a question of what consumers will accept."
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