Crosscurrents in Credit Cards

As noted earlier in this report, delinquencies on credit cards have increased significantly over the past several quarters. This does not seem to have affected the volume of credit card direct mail marketing. BAIGlobal reports that credit card solicitations in 2001 reached an all-time high of 5.0 billion pieces, up from 3.5 billion in 2000. BAIGlobal's direct mail tracking service found that 79 percent of U.S. households received an average of five credit card offers a month. Yet, the response rate remained at 0.6 percent, the same as in 2000. Although the response rate was low, it still triggered 33 million applications, up from 22 million in the previous year. Of all the bankcard offers, 72 percent were for platinum cards.

Card issuers increased their efforts to persuade cardholders to transfer balances from other cards. Commonly, the incentives were low introductory rates. Thirty-four percent of gold card mailings offered an introductory rate, up from 17 percent in 2000. Offers of rebates or rewards accounted for 29 percent of mailings, up from 9 percent in the same quarter of last year.

At the same time that card issuers were soliciting new cardholders, they were increasing the various fees charged to their cardholders. During 2001, fees paid by cardholders rose by 10 percent to $13.6 billion and were the fastest growing source of revenue for card issuers according to Credit Card Management. In his well-done article in U.S. News and World Report, Paul J. Lim reports that card issuers are attacking their delinquency problems and increasing revenues by raising the costs to consumers of becoming delinquent. Card issuers "are getting craftier about applying fees and penalties." Thus, the Nilson Report has noted that card issuers have shortened their grace periods from an average of 29.7 days in 1990 to an average of 21.1 days currently. And, card issuers have increased the cost of becoming delinquent. For example, the average late fee has increased from $12.64 in 1995 to $28.79 in 2002. Currently, a number of major banks assess late fees in relation to the size of the unpaid balance. For example, the schedule of late fees at the Chase is as follows:

Income from late payment fees assessed by card-issuing banks grew from $1.7 billion in 1996 to $7.3 billion in 2001 to become the third largest source of revenues for card issuers.

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