December 18, 2008 By Justin McHenry

The Office of Thrift Supervision on Thursday became the first federal agency to approve a series of new rules aimed at reining in credit card company practices seen as unfair. (The Federal Reserve and the National Credit Union Administration are expected to follow suit today.) The new rules will ban certain practices, such as raising interest rates on current debt, and force credit card issuers to give consumers more time to pay without penalty. Unfortunately for consumers, the rules will not actually take effect for a year and a half, on July 1, 2010.

Specifically, the new rules will:

• Force issuers to give 45 days notice to consumers when their credit card terms are about to change, including raising of interest rates or card fees. Currently the issuers only have to give 15 days notice.
• Force card issuers to give their customers at least 21 days to pay off balances
• Prohibit card issuers from raising the interest rate on existing balances, unless the customer is over 30 days late with a payment. Issuers could still raise rates on any new debt incurred, but could not apply a higher interest rate retroactively.
• Prohibit issuers from applying payments to lower-interest balances first. This often happens when cardholders transfer balances at 0% or other low numbers. Any future payments go toward paying off that lower interest balance first.
• Prohibit issuers from issuing credit and then charging fees that eat up the complete credit line (a common practice with bad credit, subprime cards). Issuers could only charge upfront fees up to 25% of the available balance, and spread remaining fees over the first 6 months of a consumer having the card.

With approximately 18 months to digest these new rules, it will be interesting to see the reaction from credit card issuers. Will they simply swallow these changes and resign themselves to fewer profits, or will they use this period to strategize about new interest rate structures, higher fees, fewer rewards, and perhaps even the widespread return of the annual fee? While the new rules should protect consumers from being blindsided by sudden rate hikes, they could also result in higher interest rates and higher fees for all credit card users.

Current Averages:

• Average consumer credit card rate, overall market: 14.33%
• Average credit card rate, non-reward consumer cards: 12.77%
• Average reward credit card rate: 15.00%
• Average student credit card rate: 14.62%
• Average business credit card rate (non-reward): 10.68%
• Average business reward credit card rate: 12.28%

Average credit card rates are down slightly from their November levels, and may be headed down further based on the significant, three-quarter-point cut in interest rates by the Federal Reserve today. However, recent rate cuts have had only a slight effect on the rates credit card companies are choosing to offer, so there is no guarantee that this latest cut will have a substantial impact. As with many of the recent cuts, major credit card issuers could choose to simply re-price their offers in line with current rates versus passing along the rate cut to new customers. (About 70% of credit cards offer variable rates that move up or down in line with Federal interest rates. However, credit card issuers are always free to re-price their card offers to new applicants — or even to those who are already their customers.)

The average credit card rate for credit cards across all consumer sectors is 14.33%, down from 14.39% in late November. In pinpointing a single “average” rate, IndexCreditCards attempts to include all of the various rate tiers that card issuers offer based on an applicant’s credit history, as well as the different rates associated with non-reward versus reward cards. Consumers with better credit histories can often find offers well beneath this average, while those with bad credit histories will likely be offered rates higher than the average.

The average credit card rate for non-reward consumer credit cards fell slightly to 12.75%, from 12.82% in late November, while the average rate on credit cards with rewards decreased to a flat 15.00% rate, from 15.06%.

While the averages listed above attempt to take into account the multiple tiers that many credit card issuers offer, IndexCreditCards.com also tracks the very lowest listed rates, those reserved for customers with the very best credit. This week those averages are 11.10% (previously 11.16%) for the market as a whole, with a 9.29% average for non-reward cards (previously 9.32%) and a 11.87% average for consumer cards with rewards (previously 11.95%).

Student credit card rates fell slightly as well, with an average rate of 14.62%, down from 14.66%. The relatively low rates on student cards continue to be a surprise, as this average is below the average rate on general market reward cards, which rarely happens. It’s hard to know how many student applicants are really getting these rates, but the advertised rates at least suggest that it’s not a bad time for college students to seek credit.

Small business credit card rates bucked the trend somewhat, with the average rate for non-reward business credit cards remaining at 10.68%, and the average rate for business credit cards with rewards jumping to 12.28% from 12.01% in November. The average rate on business reward cards has increased almost one-half point in just the last month.

Financial institutions represented in the survey include Advanta, American Express, Bank of America, Capital One, Chase / Washington Mutual, Citi, Discover, National City, Pulaski Bank, U.S. Bank, Wells Fargo, and more.

December 9, 2008 By Justin McHenry

Discover Card has announced the availability of the first biodegradable credit card, claiming the cards will “begin to break down in soil, water, compost or wherever microorganisms are present” and fully degrade within 5 years.

The new card is made from biodegradable PVC, which Discover says “allows 99 percent of the card plastic to be safely absorbed when exposed to landfill conditions.”

Current Discover Card holders who want a biodegradable version can request the biodegradable card at http://www.discovercard.com/customer-service/account/choose-design.html or by calling 1-800-DISCOVER (1-800-347-2683).

December 4, 2008 By Justin McHenry

Discover Card has brought back a popular promotion for this holiday season, offering Discover Card holders the opportunity to get a free $20 gift card when they spend over $200 with their Discover Cards at participating shopping malls.

Cardholders just bring their receipts totaling at least $200 to the customer service area at the mall and they are given the $20 gift card immediately. If you’re spending a lot this year, you can actually get up to 5 gift cards, one for each $200 in receipts.

The promotion runs through January 4, 2009, and a list of the 160+ participating malls can be found at http://www.discovercard.com/mallpromo/. Most states have at least one participating mall, although there are none listed for Alaska, Hawaii, Kansas, Montana, North Dakota, South Dakota, Vermont, and West Virginia.

Our latest survey of credit card fees finds the average credit card late fee at $34.09, while the average over-the-limit fee is $36.53. Using data from a cross-section of major and minor card issuers, IndexCreditCards.com found that late and over-the-limit fees ranged from $0 to $39. However, most nationwide issuers charged between $29 and $39 in both categories, with certain smaller issuers a bit more lenient.

As a frame of reference, a $34.09 average late fee is roughly equivalent to the monthly finance charge you’d pay if you carried a $2,900 balance at 14% interest.

Over-the-limit fees are even higher, and many cardholders find them even more galling, as logic would suggest that a card would simply be rejected if it hits the limit. Instead, most card issuers allow you to go over your limit, but then charge you a fee for doing so.

Many credit issuers use a “tier” system in assessing fees. For example, your late fee may be $15 if you have a balance of less than $100, $29 if the balance is less than $250, and $39 for balances beyond that. IndexCreditCards.com attempts to take into consideration these fee tiers when calculating the average fees listed here.

IndexCreditCards.com surveys the terms and conditions of a cross-section of cards every six months to determine these average fees.