Fee-based Credit Card Applications Come Back

According to the market research conducted by the mail-tracking company Synovate, these days households are receiving far fewer mailed credit card offers from the companies, while the number of credit offers carrying annual fees is growing steadily. Read more about this trend in the credit card industry.

The recent report shows that US households received more than 370 million credit offers during the first quarter of 2009. There’s a significant drop of 67% from over 1billion mailed offers in the same period last year. Even though lenders increasingly cut back the amount of pre-approved credit offers, holders find more fee-based credit offers in their mailboxes. Judging by the report, 27% of mailed offers in 2009 carried annual fees, in comparison with 18% of fee-based offers in the same period last year.

For the past few years, no fee credit cards have been widespread and easily accessible for customers with good or excellent scores. All the more so, even borrowers with fair or less than average scores could find no fee offers. Today, it is not the same situation. Banks and companies have become extremely conservative about the choice of potential clients. While established customers see their credit limits slashed and interest increased, new customers should expect more fee-based offers.

The upswing in fee-based credit offers is a warning sign of changes to come for consumers. The recently-passed credit card industry reform will soon restrict lenders in using certain profitable practices. Once lenders do have time, they're doing their best to offset ongoing and potential losses by increasing interest rates and fees on the accounts of their customers.

The bill signed by President Barack Obama into law aims to provide card holders with more protection against arbitrary interest rate hikes and unfair practices. Although this bill doest introduce some new rules, it does not include any comment on annual fee setting.

References to annual fees can be traced back to the times of first charge cards. Annual fees were necessary, as they brought the most profit to companies. In view of the fact that holders could not possibly carry a balance on charge cards and thus paid no interest, companies and banks charged annual fees. When first bank cards appeared, banks continued to charge annual fees justifying them by lower interest rates. Since 1990s, no annual fee credit offers have become more common, but most of the no-fee offers have been reserved for the best customers with high FICO scores.

Even before the Credit Cardholders' Bill of rights was signed, bankers had warned that the new legislation could end up in less attractive credit offers featuring higher interest rates, lower reward value and annual fees. The legislation will come into effect in nine months. Meantime, banks and companies increasingly find new ways to enhance their revenue, and fee-based credit card applications can easily become one of them.