Economists are expecting more bad news as unemployment is projected to hit 10% at the tail-end of 2009, and just improving by half a percent in 2010. With these types of scenarios looming, card holders might have a harder time keeping up with payments as jobs will continue to be scarce and layoffs lurking everywhere.
Banks are also concerned with recent developments on the credit reform policy and regulations. The Credit CARD Act which is expected to be passed in 2010 contains provisions limiting credit card companies' influence in dictating APR fees and other card costs. With this in mind, banks are finding ways to mitigate potential losses from the expected implementation of this proposed bill.
Banks are experiencing declines in some areas of the business and are left with no recourse, but to tap into unchartered territories to stay profitable.
Carrying and maintaining credit cards are starting to become an expensive activity, with annual fees on a steady rise. A recent survey on card practices revealed that on average card companies slashed credit limits by 30%-40%, and raised annual charges in the third quarter of this year. Just this week, major credit card companies such as Chase and GE Money hiked their annual rates.
Credit card companies have also started to go slow on promos and offers, and have even terminated some promotional programs.
With credit card use becoming prohibitive, consumers are shifting to alternative payment methods such as debit cards. A recent report revealed that card balances in the past year declined by $86 billion. Credit card companies alarmed at the huge fall in profits tried to apply damage control measures such as increasing annual charges in the hope of turning things around. This in a way prevented a freefall on profits and even resulted to positive numbers on the revenue front for credit card enterprises. However, what may seem as healthy numbers on paper is not really a result of increased spending, but by higher costs shouldered by credit card holders.