Fewer Card Offers in the Mail

CU360
August 6, 2009 | COMMENTS

In the first four months of 2009, credit card issuers sent out 9.8 million new credit cards—a 38% drop from the same time last year, according to Equifax credit bureau data. Low-risk borrowers can still get credit, but they're getting less than before. The average limit on a new card, after rising during the recession, slipped 3% this year to $4,594.

While it's not surprising that banks are pulling back on unsecured loans as card defaults and delinquencies surge, “what's remarkable is the very sharp decline in lending,” Mark Zandi, chief economist at Moody's Economy.com, tells USA Today. The drop signals a shift in mind-set by issuers, which historically have raised credit card limits through booms and busts.

The government has tried to stimulate overall lending by funding securities backed by assets such as credit cards and mortgages. But in the credit card market, policymakers are working at "cross purposes," Zandi says. The Credit Cardholders Bill of Rights imposes far-reaching restrictions on cards, mostly starting in February 2010. Those will likely lead to even fewer cards issued.

While households are receiving far fewer credit card offers, the ones they do receive are increasingly for cards carrying annual fees, according to Mail Monitor, the direct mail tracking service from market research firm Synovate.

During the first quarter of 2009, U.S. households received 372.4 million offers, representing a dramatic 67% drop from more than one billion offers received during the first quarter of 2008. Twenty-seven percent of 2009 offers carried annual fees, up from 18% one year ago.

Fee based cards now reflect an increasing proportion of both reward/rebate and non-reward/rebate card solicitations. In first quarter 2009, 24% of reward/rebate offers carried annual fees versus 18% in first quarter 2008. At the same time, 42% of non-reward/rebate offers carried annual fees versus 19% the year before.

“There's a great deal of speculation as to what the credit card industry will look like once the Credit Cardholders Bill of Rights comes into effect, but while most offers continue to carry no fee, we may already be moving in the direction of a fee-based model,” says Andrew Davidson, vice president of competitive tracking services for Synovate's Financial Services Group.

Cardholders that currently own a fee-based card typically own multiple cards but have just one fee-based card in their wallet, according to Mail Monitor. The fee-based card is also the card that tends to be used most often.

“If this trend continues, the battle for share of wallet will intensify,” predicted Davidson. “In a fee-based environment, consumers will be more likely to own just one or two credit cards and will not have the appetite for the level of multiple card ownership that has fuelled the growth of the industry in recent years.”