Despite CARD Rules, Issuers Will Make Consumers Pay

BIRMINGHAM, Ala.-Even with the CARD Act set to take effect. today, expect major credit card issuers to continue to seek to make consumers pay more this year.

That's a marketing opportunity for credit unions, pointed out Bill Hardekopf, CEO of LowCards.com, who predicted the number of dissatisfied bank card-holders will rise as the big boys find ways to increase revenue streams and even circumvent the new rules. "Cardholders could see increases in both their interest rates and existing fees, as well as the introduction of new credit card fees," said Hardekopf.

It won't just be an increase in the number of annual fees and balance transfer and cash advance charges, which Hardekopf pointed out are already occurring. "You'll see new types of fees. The CARD Act does not really do anything when it comes to fees, other than the over-the-limit fee. It does a great job of stopping that, but the rest of the fee category is wide open."

Hardekopf noted that Cincinnati-based Fifth Third Bancorp recently added a $19 "inactivity fee" for cards unused for a 12-month period. "In August of 2009, Citi informed some of its cardholders that they will be charged an annual fee of $30 to $90 unless they spend at least $2,400 per year," Hardekopf explained. "Some retail cards are adding a $1 monthly processing fee should you request a printed credit card statement each month."

Fees may present the biggest revenue opportunity, but Hardekopf predicted that banks will also find loopholes in the CARD Act. Pointing to a new card introduced by Macy's, Hardekopf said the fine print on the card's terms and conditions explains that interest starts on the day of purchase, and that the minimum interest payment is $2. "That means if I am a person who has been paying off my credit card balances each month to avoid interest charges, now I have an interest charge."

Uncertain what other "tricks" might be used by the big issuers, Hardekopf believes there will be more coming. He added that since the CARD Act limits interest rate hikes during a cardholder's first year, issuers are likely to also increase the advertised APR so the consumer is locked in at a higher interest rate.

Bank customers should also expect more fixed-rate cards to switch to variable, with the rising interest-rate environment looming, and a hit to rewards. Hardekopf insisted that rewards are likely to be impacted since cutbacks there are not as obvious to consumers. "The points formula can be complicated and subject to change," he said. "Expect issuers to play musical chairs with rewards in 2010."

Forecast: Rewards Programs Reduced

Hardekopf forecasted that issuers will cut costs by reducing rewards, especially for those who do not pay an annual fee and pay off their balance each month. And the reduction could come in several different forms: a cutback in the payouts of cash back cards, higher tiers required for consumers to receive the same level of rewards, or more miles or points needed for that free airline trip or hotel stay.

With these changes coming and credit unions already offering lower credit card rates and fees, Hardekopf believes 2010 is primed for credit unions to tout their card pricing advantages. "I would certainly go after my members hard and make sure they understand the significant difference between bank and credit union cards," Hardekopf said. "The banks are going to continue to widen the gap because they are for-profit and are trying to recover the billions lost in credit card loans during the economic downturn, and from all their financial misdoings."