Americans looking forward to getting new credit cards may be disappointed with the new playbook being used by card companies and banks. In a sudden reversal of policy, card issuers are getting picky in giving out credit cards to applicants.
The sudden shift has caught many consumers off-guard. In the past, issuers gave out millions of cards to almost anyone. Even with delinquent payments and cardholders, banks were able to make substantial profit by raising the interest on problematic accounts. Card companies also slapped hefty penalties and fines for late payments.
Now, experts are saying that the rising unemployment rate coupled with the poor performance of the economy is forcing many banks and card companies to cut back on issuing cards. With rising delinquencies and charge-off rates, firms are losing more money faster than ever before.
The soon-to-be implemented credit card Act of 2009 is also forcing banks to scramble before tougher regulations are set into place. The new law will make it almost impossible for card companies to raise interest at whim. Already, banks are required to mail bills and card statements at least 21 days before payment is due.
Banks are also sending significantly less solicitations through the mail. In fact, analysts say, banks sent a measly 2 billion invitations to American mailboxes. That figure, though impressive, is a mere third of what card companies sent in 2005.
Experts say that card companies are becoming stingy when issuing cards to applicants. Some banks ask applicants to provide bank-account statements to prove their financial stability. Card issuers are also increasingly relying on the net worth of applicants to determine the credit limits on their cards. Analysts have noted that banks are slashing credit lines in a bid to avoid growing losses from unpaid balances.
Industry sources revealed that an increasing number of banks are resorting to closing down the accounts of cardholders who cannot settle their balances. Other cardholders have fared better, with card companies slapping higher interest for due balances. Card issuers are starting to be more selective in choosing cardholders, analysts add.
With the full implementation of the credit card act, experts are predicting that there will only be two major types of cards: no-fee, no-frills cards, and premium cards. The first kind, they contend, will probably be offered to a broader spectrum of consumers. Premium cards, on the other hand, often have annual fees and more extensive rewards programs.