Credit Card Offers Stage a Rebound

By Eva Norlyk Smith, Ph.D.

In a possible sign of a budding economic turnaround, credit card companies have dramatically increased the number of mailed credit card offers they send out each month, according to the direct mail tracking company Mintel Comperemedia.

Mailed offers were up 47 percent in the fourth quarter of 2009 compared to the previous quarter. Capital One, Chase, and US Bank spearheaded the increase in mailed credit card offers; Capital One more than tripled its mailings over the previous quarter, Chase increased offers by 152 percent and US Bank by 93 percent.

The rebound in mailed credit card offers began back in October, when mailed credit card offers jumped by 34 percent over the month before, breaking a more than two-year long pull-back in credit card marketing. Card issuers have been sending out fewer credit card offers as part of the the pull-back in lending spurred by the credit crisis and the continuing weak economy. Since the onset of the subprime mortgage crisis, banks have been struggling with record defaults on all types of consumer loans, including credit cards.

While the number of credit card solicitations for 2009 reached 2 billion, mailings are still way down from previous volumes, however. Even with last quarter’s uptick in mailings, credit card companies sent out sent out less than one third the average 7 billion credit card offers sent out each year between 2004 to 2007, at the height of consumers’ love affair with credit cards. Still, at 2 billion mailings a year, card issuers are sending out an average of six credit card offers for every adult and child in this country, there is hardly a shortage of offers.

The new credit card mailings reflect some of the changes card issuers have been making in the wake of the new Credit CARD Act. More than one in three of the offers (36 percent) were for cards charging an annual fee, almost double the percentage of offers with an annual fees mailed out in 2008. Interest rates were also trending higher, with the purchase APR on variable rate credit cards increasing from 11.80 percent to 13.95 percent compared to the fourth quarter of 2008, according to Bankrate.com.

According to Andrew Davidson, SVP of Mintel, the fourth quarter rebound in mailings is likely to mark the start of a turnaround in credit card marketing, a positive sign for economic recovery, “because it shows issuers gaining confidence and taking a more positive outlook towards gaining new cardholders and reducing delinquencies.”

As well as a sign of economic recovery, the rebound in credit card marketing could also be a sign that card issuers have had sufficient time to adjust terms to meet the changes brought about by the new Credit CARD Law, and are ready to resume higher levels of credit card lending. The main provisions of the new law are set to step into effect at the end of this month.

But while card issuers are increasingly willing to lend, it remains to be seen if consumers are ready to spend. With unemployment at record levels, consumers have been pulling back on credit card usage, with revolving credit dropping by a record $17.5 billion in November, according to the latest numbers released by the Federal Reserve. In addition, after a year of inflating credit cards interest rates and deflating credit card limits, many consumers may have become all too wary of being entrapped by the lure of plastic.

According to a December report by the internet research company comScore, consumers have already started shifting their payment and spending habits towards debit cards or other payment forms as a result of tightening credit card terms. More than half of cardholders who had been subjected to higher credit card interest rates or lowered credit limits indicated that they had lost confidence in their card issuer.

Published: February 5, 2010