The credit card industry has been on a roller coaster in the past year or two. In 2009 and 2010, the implementation of the CARD Act brought about some much-needed changes, but it also led to a rise in interest rates. And now, the new Consumer Financial Protection Bureau is about to take aim at credit card agreements.
What does it all mean for 2011? Well, don’t expect things to go smoothly anytime soon.
Here are six things to watch for in 2011:
#1: Credit card use will rise again
In 2010, 8 million consumers stopped using their credit cards, according to a survey by credit reporting agency TransUnion. While I think some people made a conscious choice to pull back and stay out of debt, I think many simply had no choice. Lenders were stingy and even those who had credit cards saw their credit limits reduced. So a lot of the reduction in credit card use was really the result of a lack of access.
In 2011, lenders will start to look a little less like Scrooge. As lenders start loosening the purse strings, more people will climb back on board with credit cards. And as requirements loosen and people with less-than-stellar credit get back in the game, credit card use will slowly start to rise.
#2: APRs will increase
I almost hate to say this because consumers need a break from rising interest rates. But just as the CARD Act led to higher APRs, the new Consumer Financial Protection Bureau will likely spook card issuers enough to raise rates again. White House advisor Elizabeth Warren plans to target credit card agreements with an eye toward simplifying them for consumers.
This is, of course, a great thing for consumers. But having lost billions due to the CARD Act, issuers will be worried about the expense of simplifying statements. Increasing APRs to replace lost revenue is the likely knee-jerk reaction.
#3: New fees will still pop up
This sort of goes hand in hand with the APR increases. Issuers will continue to look for new revenue and new fees are a likely source. And with the bureau becoming active, issuers are getting worried about future revenue losses. Once the bureau hits its stride, card issuers will have a more difficult time sneaking in outlandish fees. But trying to suddenly stop new fees from popping up in 2011 is like trying to turn the Titanic in a hurry.
In 2012, you’ll have more protection from card issuers’ shenanigans. But in the meantime, you need to stay alert and look for any unusual charges on your statements. Right now, make a vow that you’ll read every piece of credit card mail—no matter how boring it looks—that shows up in your mailbox.
#4: Prepaid debit cards will be heavily promoted
Basically, plastic that isn’t covered by the CARD Act will be aggressively promoted by issuers. In 2010, consumers saw a flood of offers for “professional” or business credit cards. You’ll continue to see these, but also expect to receive promotions for prepaid debit cards. With prepaid debit card offers, it’s never been more important to read the fine print. Some of these cards carry outrageous fees.
And keep an eye on prepaid cards marketed to teens. The Kardashian Kard mercifully failed, but expect to see new cards—possibly celebrity-related—targeting the teen crowd.
#5: Longer 0% balance transfer intro rates will continue
This past year, longer 0% introductory balance transfer offers returned. And some of them were the longest I’ve seen in a while. For instance, the Citi® Platinum Select® MasterCard® offers a 0% APR introductory offer on balance transfers and the intro period lasts for up to 24 months.
I don’t expect to see many offers with such lengthy intro periods; most, really, will be in the 12- to 18-month range. But if you’re trying to get rid of a credit card balance, this still gives you a chance to pay down your debt at zero percent interest for a year or so. Look for more enticing balance transfer offers to show up in your mailbox.
#6: High-tech tinkering will continue
In 2010, Citibank began testing a card with two buttons and tiny lights, called the 2G card. It allows cardholders to choose—at the cash register, mind you—whether they want to pay for their purchases with reward points or credit. There may not be widespread use of these types of cards in 2011, but a variety of “smart” credit cards will begin to show up in more test markets.
And finally, while speculation about smart phones replacing credit cards has peaked in the past few months, I don’t see this happening in 2011. In 2012? Well, I’ll address that in my 2012 predictions.