NEW YORK (MainStreet) - Credit cards haven’t exactly had their best year: The Credit Card Accountability, Reform and Disclosure (CARD) Act of 2009 imposed stricter regulations on credit card issuers and, in turn, made it harder for many Americans to get a credit card. But you can’t blame credit’s woes entirely on the CARD Act.
Studies have shown that the economic downturn itself was enough to cause 8 million consumers to retire their credit cards, and for the first time ever the total payment volume for Visa (Stock Quote: V) debit cards surpassed that of credit cards, meaning credit was no longer the plastic payment of choice.
Can the credit card industry expect more bad news in the new year? Tim Chen, CEO of popular credit card review site NerdWallet, shared his thoughts on what might happen in the credit industry in 2011.
- Consumers will use mobile phones as payment tools. Chen says that three major mobile phone companies - Verizon Wireless (Stock Quote: VZ)), AT&T (Stock Quote: T) and T-Mobile (Stock Quote: DT) - have come together and Discover (Stock Quote: DFS) to form Isis, a venture to provide mobile payment solutions through cell phones. This is a threat to Visa, MasterCard (Stock Quote: MA) and other credit card issuers who will likely launch similar mobile campaigns to compete with Isis.
- Issuers will introduce more fees for rewards programs. Rewards programs will likely improve for prime credit card customers (those with credit scores 760 or above), but at the expense of higher annual fees. According to Chen, this has already started with premium rewards cards like the Starwood Preferred Guest Card.
- Banks will push reloadable prepaid cards. Next year, as a result of the financial reform act’s Durbin Amendment, the Federal Reserve will start to regulate debit interchange fees. The legislation is designed to help merchants and consumers save with lower processing costs, but Chen believes that banks will respond by urging customers to sign up for reloadable prepaid debit cards, which are left unregulated by the legislation. Plus, they are already popular with consumers, despite their obvious shortcomings.
- Credit unions will be more competitive. The Durbin Amendment does not apply to financial institutions with assets of less than $10 billion, which Chen thinks will benefit credit unions – smaller organizations owned and controlled by the people that use its services. He thinks they will be able to continue to offer free checking while most national banks will need to impose monthly fees or high minimum balances.
- More junk mail will mean more credit card debt. The CARD Act may have decreased credit card issuers’ customer base, but they are going to respond with tried and true measures like direct mail. According to Chen, approvals for new credit cards are increasing as card companies send out more mail solicitations, and he believes that these aggressive marketing campaigns, coupled with bait-and-switch introductory offers that promise temporarily low annual percentage rates, will ultimately cause revolving credit card debt balances to rise again after more than two years of declines.