A Weekly credit card Rate Report shows that the card providers increasing interest rate movement caused the country's total annual percentage rate to swell by 12.28 percent. The figure reflects banks adapting to both economic challenges and federal legislation created to lessen credit card abuse.
According to Andrew Davidson, senior vice president to Comperemedia in New York, though prime is at its low rate there is the growing overall APR in the country. This he believes is something very interesting.
The Federal Reserve decides to not touch its key lending rate at the moment which remains to be 3.25 percent. This figure is used to set all bank's rates which in turn affect the APRs for variable rate credit cards. The Fed is sticking by its policy to keep the rate as it is since December 2008 in its efforts to bring some change in the economy.
Since credit card rates are affected by what the Fed poses, it is expected that credit card rates will be impacted when the Federal Revenue increases it rates as soon as the economy recovers. Davidson adds that when this happens, many consumers would have to adjust since most credit cards now are on variable rates. Those having fixed rates tend to be sub-prime.
Though there are recorded changes in the economic conditions, there are still challenges on the way. One of which is the decline in the use of credit cards. The Federal Reserve's latest survey reports that consumer spending remains to be weak and lending standards are still steep during July and August. The Fed's G.19 report shows that credit card balances have gone down for the tenth straight month because of the mentioned circumstances.
Revolving credit which is mostly comprised of credit card debt dropped at a rate of 8.0 percent in July from a 6.4 percent decline in June. All in all, revolving credit plummeted to $905.6 billion from a total of $911.7 billion in June.
Although the Federal Reserve has kept its hands off its lending rate, the annual percentage rate's increase is analyzed to have been caused by banks' and credit card providers' reaction to the economy and the new credit card law which takes effect on 2010. The new law in particular has many provisions that are threatening to credit card providers' profit. The interest rate hikes from many issuers are their cautious actions before the new law implements its strict reforms. This week, Chase credit cards have had the greatest increases.
According to data released by Minterl Comperemedia, banks are staring to offer premium credit cards. Such have higher go-to APRs. The data also reveals that in the second quarter the rate at which premium credit card offers from issuers have been sent to direct mail is at 28 percent more compared to the rate in the first three months of 2009. This is regardless of the reduced overall credit card offers by eight percent.
Most of the consumers who received such offers are those with high credit scores. They are those who are considered to have the lowest risk of missing payments.