The credit card industry has had a bumpy ride for the last five years, with several situations driving down revenue – things like generally poor market conditions, unfavorable regulation and card payment delinquencies.
The credit card industry received a blow from the faltering economy, with high unemployment, declining real estate values, and high consumer debt. The federal government enacted the Durbin Amendment and the Card Act.
- The Durbin Amendment put a cap on interchange fees collected by card issuers from debit card fees.
- The Card Act included comprehensive reform legislation for the purpose of protecting the consumer by limiting and regulating the way card companies charge their customers.
As the recession deepened, people were having a hard time paying back what they had borrowed. Many people tried to pay down their debt and changed from credit to debit cards. Others paid late and defaulted on their payments. Higher delinquency rates from defaults and charge offs increased loan loss provisions which in turn tightened the available credit to consumers, so that only those with excellent credit scores were able to compete for credit.
The situation began to change in 2011. Revenues and profits returned to the industry as the unemployment rate dropped, consumer spending increased and loan loss provisions decreased. Now, as the economy improves, card industry revenue is forecast to increase 3.8% in 2012, following an increase in 3.9% in 2011. Projections are for more credit card use, especially online, and more prosperous times until at least 2017.[1]
In order to lure customers back into the market, card issuers are making some good offers where balance transfers are concerned. This is being done in part to stabilize the market, so that people recovering from the recession can rid themselves of debt they accumulated during the economic recession.
This is a chance to start fresh, to pay down debt, and to start purchasing again. Card issuers hope that discretionary spending will keep balances on the new cards, so that at the end of the introductory periods, the customers will keep on paying and spending. This will in turn spark industry growth. As long as people continue to make their payments, loan loss provisions will decrease even further.
For those with cards having both a high interest rate and a high unpaid balance, companies have some rich deals they’d like to offer consumers. The cards feature longer introductory periods, some as long as 18 months, with no transfer fees, cards such as: [2]
New Slate, from Chase – 0% intro APR, 15 months, no balance transfer fee
Citi Simplicity – 0% intro APR, 18 months, 3% transfer fee but no over limit or late payment fees
Discover More – 0% intro APR, 18 months, 3% balance transfer fee
Capital One Platinum Prestige – 0% intro APR until September 2013, 3% balance transfer fee
Virtually all the major card issuers are getting into the act. How long the banks will continue to waiver the transfer fee, is anyone’s guess!
[1] http://www.morningstar.com/invest/articles/2083-credit-card-issuing-the-us-industry-market-research-report-available-from-ibisworld.html
[2] http://www.mymoneyblog.com/best-pre-screened-no-fee-0-apr-balance-transfer-offers
