Credit card issuers began to regain their footing at the end of 2009, according to direct mail tracking service Synovate Mail Monitor.
During fourth-quarter 2009, U.S. households received 398.5 million credit card offers, a 46% increase from the 272.5 million offers received during the third quarter. However, volumes are still fairly tepid when compared to 668.1 million offers mailed during the same time a year ago.
An increase in mailings to the subprime market was largely responsible for the overall increase. The subprime segment had experienced incredible credit tightening following the recession and the initial passage of credit card reform legislation. However, issuers like Capital One have stepped up to mail to this segment once again.
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, as well as the continued effects of the credit crisis and the slow-to-recover economy is causing major anxiety to both consumers and businesses, says Anuj Shahani, director of competitive tracking services for Synovate's Financial Services Group.
Issuers have been scrambling since mid-year to reconfigure their business models to accommodate the changes required by the new legislation, which goes into effect Feb. 22. This was one of the major reasons that issuers cut down on new credit card mailings, Shahani says.
"The rules of the game were changing and, until the industry knew what the new rules were, none were keen on playing a blind game," Shahani says.
Mail Monitor predicted that issuers would start mailing again once the details of the new law were ironed out, and almost on cue, the major players started to mail more once that happened, he says.
But the marked increase in mail volume, subprime and otherwise, came at a price. The average purchase APR for fourth-quarter 2009 is 13.51% and is the highest recorded by Synovate Mail Monitor over the past five years. Also, 35% of the offers mailed in the fourth quarter carried an annual fee, the highest share recorded by Synovate Mail Monitor in the past decade. Mail Monitor anticipates that both APRs and the proportion of offers with an annual fee will continue to rise in 2010.
"As the economy recovers, even at a modest pace, we expect credit to become available to consumers, albeit at a higher price," Shahani says. "The CARD Act has clamped down on many revenue streams for issuers, and some of this lost revenue is going to be made up by increasing annual fees or introducing new fees on credit cards."
A consumer confidence study conducted recently by Synovate found that three in every four credit cardholders will either cancel or consolidate the credit cards in their wallet, if they carry an annual fee.
"Issuers are aware that many cardholders are unwilling to pay hundreds of dollars in annual fees," Shahani says. "Issuers will need to come up with innovative solutions, such as introducing low-fee cards and creating hybrid cards -- a combination of debit and credit -- to tackle the problems raised by the new legislation and remain profitable."