Consumers to Credit Card Issuers: Enough Already!

By Eva Norlyk Smith, Ph.D.

In the always rocky relationship between credit card issuers and consumers, 2009 was particularly contentious. This was the year when millions of consumers discovered the hard way that credit card companies, despite lengthy grace period and sweet promises of 0% APR sugar Daddy offers, are not their friend.

And, while card issuers so far have had the upper hand in the great Credit Card Wars of the early 21st century, credit card companies may be about to (re)discover a bitter lesson of their own: if want your business to thrive, don’t kill the goose that lays the golden egg.

Credit cardholders across the country over the past year have been protesting loudly, but largely in vain, as card issuers aggressively increased interest rates, slashed credit limits, increased penalty fees, and in numerous other ways tightened credit card terms. Particularly galling has been the fact that even cardholders who have never had a late payment have seen their interest rates hiked, at times as high as 29.99 percent, astronomical levels previously reserved for cardholders seriously late on payments.

It’s only a matter of time before such business practices create disenchanted customers, and indeed, it appears, cardholders have started voting with their feet. According to a new report by comScore, an internet research company which follows the online credit card industry, as consumers have gotten increasingly dissatisfied with credit card companies, they have started changing their payment and spending habits. Many are even defecting, if not in droves, at least in a steadily growing trickle, as more turn to debit cards or take out new credit cards with card issuers offering better terms.

According to the comScore report, half of those asked had noticed changes to their credit card terms and conditions over the last year, and of those, 53 percent reported that their interest rate had been increased. Nearly two thirds of cardholders whose terms had been changed said they shifted their preferred payment method as a result of tightening credit card terms. Of these, 55 percent said they spent less on their credit card, 27 percent said they had stopped using the card altogether, and 12 percent had closed the credit card account.

In addition, 54 percent of those who had noticed changes to their credit card terms indicated that they had lost confidence in their card issuer; a full 81 percent said that they would consider switching to another credit card issuer.

“In the current economic environment, many customers are taking strong action in response to changes made by their credit card issuer,” said Kevin Levitt, comScore vice president in a press release accompanying the report. “Issuers must work to provide additional value or risk consumer backlash in the form of reduced card spending or even brand defection.”

Published: December 14, 2009