After several years of declining use, credit cards are poised for resurgence. Despite the nation’s very rocky economic recovery, consumers appear to have halted their belt-tightening and bank incentives to use credit cards rather than debit are gaining appeal.

- Beth Robertson, Director of Payments Research, Javelin Strategy & Research, Nov. 28, 2011

Credit card use set to explode

The press release from which that quote was taken includes some other interesting predictions. Javelin Strategy & Research forecasts that credit card use for online purchases is going to grow by 63 percent over the five years from 2011 to 2016. The same figure over the same period for debit cards is just 2 percent. “Alternative” online payment methods, such as prepaid cards and gift cards are expected to rise, but even by 2016 they’re set to account for only 19 percent of all online purchases. By that time, Javelin expects, debit cards will account for 21 percent.

It’s not just online that credit cards are coming back into their own. On Dec. 5, First Data Advisors recalled that it had first noted a change in credit card trends back in February, and since August had seen year-over-year growth in credit card spending outstripping that for both signature and PIN debit card transactions. During Thanksgiving Thursday and Black Friday this year, the value of all credit card transactions was more than 10 percent higher than over the same two days in 2010.

Rewards credit cards and credit card offers

So why the turnaround? It would be nice to think that it was because consumers had read “7 ways in which credit cards beat debit cards,” an article that appeared on IndexCreditCards.com just about a year ago. But the real reasons are probably different. Since the Durbin Amendment reduced the cut that banks receive of each debit card transaction (but left that for credit cards at the same level) there’s been a strong reason for financial institutions to push consumers towards credit card use. And that’s most obviously revealed itself in two ways:

1. On Dec. 5, CNNMoney quoted data from Mintel Compermedia that suggested that 1.3 billion credit card offers were mailed to consumers during the third quarter of 2011. That’s an 85-percent increase over the level at the start of 2010.
2. Rewards credit cards are now a lot more generous, by and large, than they were a year or two ago. Credit card companies see these as key ways both to build market share and to drive up their customers’ use of their products.

Credit card debt not yet a problem

Javelin’s study tossed up one troubling statistic. People using debit cards for single online purchases on average spend $58.29 on each transaction. However, those using credit cards in the same circumstances spend $82.10. Now, there could be a number of explanations for this, but one may be that consumers are tempted to spend more when buying on credit.

So how scared should we be by the prospect of Americans getting carried away with their card spending, and loosening their belts too much? Well, not too scared, at least according to research published Dec. 7 by TransUnion, one of the big-three credit bureaus. In a press release, Steve Chaouki, group vice president in the company’s financial services business unit, remarked:

Credit card delinquencies are expected to remain fairly steady in 2012 ranging between 0.69 percent and 0.76 percent — levels far below those typically observed in the last 15 years. In today’s uncertain economy, consumers have found that credit cards are among their most valued assets due to the flexibility they provide. As a result, consumers have made a concerted effort to make on-time payments and maintain relatively low balances. In fact, credit card debt per borrower in the third quarter of 2011 stood at $4,762, approximately $1,000 less than the second quarter of 2009, the quarter in which the recession ended.

So maybe we can relax a little. But the specter of credit card debt still haunts many of us, so if you choose to use your plastic, you may want to do so with prudence.

On July 21, the new Consumer Financial Protection Bureau opened its doors for business, and at the same time launched a portal (via a call center and snail mail as well as online) through which consumers could complain about their credit card companies. In spite of that launch being reported on the IndexCreditCards.com news blog, some people may remain ignorant of the service’s existence, a possibility that might appear likely given that it received only 5,074 complaints up to Nov. 15.

Top credit card complaints

The CFPB broke down complaints into 33 categories (including one called “other”), so it gives us a chance to see the things about credit card companies that bother people most. Perhaps surprisingly, only three of these each made up over 10 percent of the total:

1. Billing disputes: 13.4 percent
2. Credit card rates: 11.0 percent
3. Identity theft/fraud/embezzlement: 10.8 percent

The fourth largest category was that “other” one, and no other (other than “other”) accounted for more than 4.4 percent of all complaints. One interesting observation is the low levels at which the three fee-related categories (late fee, overlimit fee and other fee) appear. When you add them all together, they make up less than 8 percent of all complaints. Before the Credit Card Act was implemented, you might have expected the ultra-high penalty fees that issuers used to charge to have topped the list.

Credit card interest rates

At first sight, consumers’ beefs with credit card rates seem strange. We all know what rates we have to pay on our cards, so what’s the problem? Unfortunately, the CFPB doesn’t provide an answer, but it may be that penalty rates are the issue. These can be triggered by late payments, and often result in a doubling of the APR that a consumer is used to paying. You can see someone being outraged if such a hike were to be imposed (and one usually would be) after they’d provided their credit card issuer with a perfectly reasonable and innocent explanation for a one-off slip.

Of course, credit card interest rates could easily become an increasingly common cause of complaint in the future. Most credit cards today have variable rates, and when these eventually begin to climb–and some believe they might do so steeply once the economy gets fully back on its feet–then many who carry forward significant balances could well find themselves suffering real pain.

Balance transfer credit cards

It was encouraging to see that only 83 complaints (1.7 percent of the total) were received concerning balance transfer credit cards or balance transfer fees. Many see these as important tools that can help them head off financial problems before they get too serious, so it’s important they work well.

However, you have to recognize the limitations of the data. If only 83 balance transfer credit cards were to have been issued during the period the figures covered (an incredibly unlikely scenario) then that would mean that every one of them was a cause of complaint. The thing is, we don’t know how many were issued, so we can’t make more than intelligent guesses about how well they’re performing for cardholders.

There is another weakness in the CFPB report: it provides only a snapshot of the period covered. Of course, that’s inevitable for the first data from any tracking study. What will be even more interesting in the future is to watch trends develop. The CFPB, the credit card companies, and you as a cardholder should then be able to identify problem areas of the business as they emerge, and address them. So, for example, you might one day see that complaints concerning cash advance fees have suddenly jumped (they account for only 0.3 percent in the current report), and that might prompt you to check whether your issuers have bumped up their fees recently and, if so, consider switching to a different card.

A truly free market can only exist when all parties have access to full, accurate and timely information. Anything that improves the flow of knowledge, even imperfectly, should surely be welcomed. The CFPB is surely a step in the right direction.

Has there ever been a holiday period with so many tempting credit card offers? Well, here are two more.

American Express “gift chain”

American Express launched its “gift chain” on November 28. The idea is that you get a free gift every time you charge to an eligible American Express card an online purchase of $25 or more through a participating merchant’s website. You stand to receive anything from a $500 gift card to a $5 statement credit, a year’s membership of ShopRunner or… well, the list is long. The company will send you an email saying what you’re going to get as soon as your transaction is processed.

The catches? Well, you have to register your eligible credit card first, you can receive a maximum of 10 gifts, and the promotion runs from now until either December 21 or when the goodies run out, whichever is earlier. However, American Express says that there are “hundreds of thousands” of those so you stand a good chance of walking away with something worthwhile.

Participating merchants include:

• American Eagle Outfitters
• Bed Bath & Beyond
• Blue Nile
• Dell
• GameStop
• J.Crew
• Lenovo
• Neiman Marcus
• Nike
• REI
• Rue La La
• Toys”R”Us
• vente-privee USA
• Walmart.com
• YoYo.com
• Zappos

Capital One travel rewards cards holiday vacation competition

Today’s second credit card offer comes in the form of a competition from Capital One. It’s teamed up with TravelingMom, which apparently is “the nation’s top website and blog network for moms who travel.”

Between now and December 10, moms can visit the website and share their stories there. One lucky mom (who’s chosen by a random draw) gets to relive her vacation with her family. More specifically, and according to the website: “The winner will get plane tickets for four and five nights in a hotel anywhere in the continental United States – a prize worth up to $5,000, courtesy of Capital One Venture.”

Only a cynic would imagine that this is largely an excuse for the credit card company to remind people of the (admittedly good) benefits offered to holders of Capital One Venture travel rewards cards. As your blogger is far from cynical, at least at this time of year, these include:

1. No blackout dates or other restrictions.
2. Fly on any airline, or use points for other travel expenses such as hotel and rental car bills.
3. No foreign transaction fees.
4. Miles never expire, and you can earn as many as you want.

This competition sounds more like a bit of fun than anything else. But, if you’re in the mood, there’s nothing wrong with that.

Stand by for a blockbuster Black Friday weekend. Recently, the National Retail Federation (NRF) reported the results of a survey that suggested that half of all Americans (152 million) are planning to make purchases either in-store or online over the three days running from Friday through Sunday. That’s way up on last year, when some 138 million were expected.

Online shopping

How many will venture out and how many will head for their home computers may well depend on the weather and the crowds. Extrapolating from the NRF survey sample, about 74 million are certain to visit stores, while another 77 million say they plan to wait and see how cold it is and how mobbed the malls are.

One thing seems certain, at least according to new research published by comScore on Nov. 23: it’s going to be a bumper year for online sales. Just during the first 20 days of November, retail e-commerce sales reached $9.67 billion, 14 percent up on the $8.47 billion spent during the same period last year. comScore now forecasts that such purchases for the whole 2011 holiday season will top $37.6 billion, 15 percent up on 2010’s equivalent number.

Credit cards and online shopping

Presumably, a large chunk of that will be spent using credit cards. There are at least four reasons why anyone with self-discipline, sound finances and cards (particularly rewards credit cards) should think twice before paying for online purchases any other way:

1. Credit cards provide better statutory protections against fraud and shoddy or wrongly described goods than any other payment method.
2. Many rewards credit cards are currently offering exceptional deals both on the cash and points you can earn and on redemptions.
3. You get an interest-free “loan” between the date you make a purchase and the date you have to settle your next card statement.
4. Many credit cards have built-in protections that can extend warranties and boost your right to return unwanted goods.

Credit card debt and temptation

Of course, those who can’t resist tempting bargains may be better off sticking to debit cards, checks and cash. Writing in the Detroit Free Press on Nov. 24, Susan Torpor gave a sobering example of how those extra impulse purchases can add up–and how they can affect your credit card debt.

Suppose, she suggested, that you charge an extra $25 a day in impulse purchases to your credit cards between Thanksgiving and New Year’s Eve. If you only make minimum payments on the $950 you run up, it should, she calculates, take you six years to clear the debt. And, if your credit card rates average 15 percent (lucky you!), you’re likely to pay $501 in interest charges for the privilege.

No wonder credit card companies are so keen to tempt you with promotions and enhanced rewards this holiday. They want your money.

In theory, you can swipe any American Express, Discover, MasterCard or Visa product at any location anywhere in the world that accepts those cards. The reality can be different. The United States is fast becoming the only advanced nation that has not switched–or is not in the process of actively switching–to the so-called “EMV” payment technology, which, instead of having a magnetic stripe, uses a tiny microprocessor chip embedded in the credit card to enable transactions.

No matter what the theory is, in practice American travelers often encounter problems in the 130 countries that have so far adopted EMV with both wary merchants and automatic payment devices–when pumping their own gas, buying rail tickets, paying tolls, using hotel express check-out machines and so on.

Credit cards to go

As increasing numbers of their customers complain of bad experiences, American credit card companies are beginning to respond by issuing products that have both magnetic strips and chips, and that thus can be used anywhere. The latest such product comes from Chase, and is the British Airways Visa® Card. Chase says that this is the first among airline credit cards to be EMV-enabled, although Business Insider reports that Citi’s chipped Executive AAdvantage World MasterCard was launched in July. And U.S. Bank’s range of more general travel rewards cards has one.

Chase already has two products with chips: the J.P.Morgan Select card, and the Palladium card. Other issuers, including Wells Fargo and the United Nations Federal Credit Union, have been trialling or generally issuing EMV cards, and Citi says that it plans to do offer more soon.

Rewards with no foreign transaction fees

Chase’s new product comes with a hefty $95 annual fee, although that may not bother too much the high fliers (in both senses) to whom the credit card is designed to appeal. Indeed, regular travelers may find that the card’s lack of foreign transaction fees could easily save them that–and considerably more–over a year.

Like many travel rewards cards, this one comes with its own currency, in this case called “Avios.” You earn 2.5 Avios for every dollar spent on British Airways purchases, and 1.25 Avios a dollar on everything else. Handily, these can be redeemed for flights and upgrades not only with British Airways but also with the other 11 partners that make up the oneworld® alliance:

• American Airlines
• Cathay Pacific
• Finnair
• Iberia
• Japan Airlines
• Lan Airlines
• Malév
• Mexicana
• Qantas
• Royal Jordanian
• S7 Airlines

In a press release, Andrea Burchett, who’s a spokesperson for The Mileage Company, which operates British Airways’ Avios currency and rewards program, commented:

The new EMV chip-with-signature provides our globally minded flyers with a safe and convenient way to make transactions when overseas. The addition of EMV chip-with-signature technology makes the British Airways Visa card the first airline co-branded credit card issued in the United States that is chip-enabled, which is just one of the many valuable benefits afforded to our loyal customers.

It’s been a long and painful path, but most of us finally seem to be on top of credit card debt. But have we learned our collective lesson?

Credit card debt problems contained…

Two authoritative reports on card debt have been published in the last week, and both contained their share of cheerful reading. The first, from Fitch Ratings, show that “charge-off rates” (when credit card companies write off debts as noncollectable and pass them on to collection agencies) remain very low. In the third quarter, they averaged, for the top-seven card issuers, 4.53 percent which was down 363 basis points (bps) year over year. The other report, from TransUnion, showed that the number of delinquencies (when cardholders fall 90 days or more behind on their accounts) remains “near record low levels.”

…for now

However, both reports also contained somewhat muted warnings that there could be clouds on the horizon for consumers and credit card companies alike. TransUnion reported that the third quarter saw the first rise in delinquency rates for two years. And, of course, many delinquencies turn into charge-offs, so it’s no surprise that Fitch says: “…higher provision expenses [are] expected for 2012.” In other words, card issuers should set aside more money to cover bad debt next year.

Now, it’s true that neither of the reports is predicting serious problems anytime soon. But they contain enough worrying data to cause this blogger some issues.

Credit card offers going subprime

Perhaps the most worrying of all was a remark contained in TransUnion’s press release. Ezra Becker, who’s the company’s vice president of research and consulting in its financial services business unit, said:

We find card delinquency being driven by a number of factors. One such driver is the changing risk profile of consumers opening new credit card accounts. In the face of competition for prime consumers and the clear deleveraging efforts of those consumers, lenders have been gradually shifting their focus to the sub-prime market.

Yep, between July and September of this year, more than a quarter (25.2 percent) of all new cards issued went to subprime borrowers, according to TransUnion’s data. And that just a few short years after an almighty credit crunch created by lending irresponsibly to the subprime.

Credit card interest rates another problem

But it’s not just subprime borrowers who pose a threat. Dan Geller, an executive vice president with Market Rates Insight Inc., told PaymentsSource on Nov. 15:

Issuers are taking a bigger risk than in the past by stepping up promotions and tempting consumers with deals to spend more on their credit cards as we head into the holiday season with the hope that higher spending will lead to balance carry-over.

So issuers are using special credit card offers to tempt the prime and the subprime to take on debt. You can see why. Credit card interest rates are currently unusually high (16.75 percent APR, at the time of writing, according to IndexCreditCards.com), so having customers carry forward balances would boost interest income, one of the card sector’s most significant revenue streams.

Credit card debt to rise?

The latest Federal Reserve data on consumer credit suggest that, in September, revolving credit (which is nearly all credit card debt) fell by 1 percent. However, not everyone is convinced that the Fed’s figures accurately reflect reality. One who may wonder about that is Robert A. Dye, chief economist at Comerica. In a Nov. 15 email, he wrote:

Undaunted by flat-lined incomes, shoppers forged ahead in October driving retail sales up by 0.5 percent, after a strong 1.1 percent gain in September. The income constraint means that households are willing to add debt or reduce their saving rate in order to keep spending more. We saw both mechanisms in play in September and may well see the same when the October income and consumer credit data are published.

So what do you think? Have we learned our collective lesson? Or are we circling back to set off again on that long and painful path?

Capital One last week announced plans for a special Black Friday promotion for holders of its rewards credit cards. From Nov. 25 to Nov. 28, you can gain enhanced points and cash back by using the company’s Perk Central online shopping portal to make purchases from more than 40 retailers.

Extra rewards for Black Friday

Normal rewards (both points and cash) will be boosted by up to 100 percent on goods or services bought from these online outlets. They include:

• Gamestop.com: +40 percent
• Landsend.com: +100 percent
• Lego.com: +100 percent
• Lenovo.com: +100 percent
• Macys.com: +40 percent
• TigerDirect.com: +67 percent

There are no caps on the extent of the rewards you can earn with Capital One, and they never expire as long as your account is open.

Leverage existing rewards points on certain items

As Capital One says, points on its rewards credit cards can be redeemed at any time. But it’s also running a special pre-holiday redemption promotion from Nov. 18 to Nov. 21 that could help you augment the value of the points you’ve already accumulated on your Capital One card. Items being promoted include:

1. Magellan Roadmate 1324 satellite navigation devices
2. Sharp Aquos 60″ LCD HDTV televisions
3. TaylorMade Bumer SuperFast 2.0 Driver golf clubs

If you know a golfer, adventurer or home entertainment enthusiast, then this promotion could turn out to be a thrifty way to kick off your holiday gift shopping.

Rewards credit cards offer more

Of course, as regular readers already know, Capital One’s promotions are just the latest in a long line of marketing initiatives designed to increase card use. Right now, credit card companies are fighting hard for market share, with rewards being their principal battleground.

And their customers appear to like that. Last month, Capital One published the latest results of its continuing survey of consumers’ attitudes to rewards across all card issuers’ products. All those polled held rewards credit cards. The findings included:

• The proportion of customers who were “completely satisfied” with their rewards credit cards increased between the first and third quarters: up to 23.9 percent from 21.7 percent.
• As many as 47 percent of respondents had redeemed at least some of their rewards during the third quarter.
• Some 27.8 percent of cardholders were saving up rewards for holiday shopping.

As regular readers may know, card issuers are currently falling over each other in their rush to improve their credit card offers. In fact, it’s getting tough to keep up with all the enhancements. So here’s the first in an occasional series of news blogs that is going to try to make sure that you don’t miss anything that could be of value to you.

Cash back credit cards: a bonus from American Express

First up is American Express, who is offering a one-off $25 statement credit if you spend $25 or more at a participating small business on this year’s Small Business Saturday, which is Nov. 26. But first you must register your U.S. American Express® Consumer Card or Business Card by clicking on the link at www.facebook.com/shopsmall and following the directions.

This has to be good on so many levels. For you, it could mean (if you shop really carefully) 100 percent cash back on a purchase. But also, it’s a great way of giving the struggling small business sector a much-needed shot in the arm.

Chase boosts rewards and perks for military

In other welcome news, Chase announced last week that it was improving the deals it offers to “our men and women in uniform around the globe.” According to the press release, the move affects those holding:

• Chase Military Star Rewards MasterCard
• Air Force Club MasterCard
• Army Morale, Welfare, Recreation (MWR) MasterCard
• Navy MWR MasterCard
• Marine Corps Community Service MasterCard

From now on, those with these cash back credit cards, none of which have annual fees, should receive unlimited rewards on all their purchases, and foreign transaction fees are going to be scrapped, something that should prove especially valuable to those serving overseas. Cardholders get 2 percent cash back on purchases at Army MWR, Air Force Services and MCCS Merchant outlets, and 1 percent on everything else. ,” said Emelie Smith Calbick, a general manager of Chase Card Services, commented in a press release:

Chase is proud to support our men and women in uniform around the globe. Service members and their families deserve financial resources that fit their unique needs – whether they are on-base, have been deployed or are anywhere in between.

As reported in CardRatings.com, according to Steve O’Halloran, spokesman for Chase Card Services, the Chase Military MasterCard is also included in the promotion, although the press release did not mention it. Chase’s USNA Alumni Association MasterCard is not part of the promotion, but it no longer includes a foreign transaction fee.

Visa small business credit cards

Meanwhile, also last week, Visa unveiled improvements to its “Visa SavingsEdge” program for those with small business credit cards that carry its brand. According to Visa, there are currently 24 million such cards in the US, but you have to register yours (it’s free at www.visasavingsedge.com/offers) before you can enjoy benefits.

After enrollment, you can get discounts at a large number of participating merchants that offer products and services that are likely to appeal to small businesses, including:

• Advance Auto Parts
• Barnes & Noble
• Health Advocate
• HyperOffice
• iContact
• La Quinta Inns & Suites
• Red Robin
• Sears PartsDirect
• Support.com

We’d love to report on some juicy behind-the-scenes goings-on at one of the major credit card issuers, but that’s going to have to wait for another day. Because today’s top story involves two recent improvements to rewards credit cards – one from Chase and the other from Discover – that deserve attention.

Chase turns rewards credit cards into travel rewards cards

Let’s start with Chase, which has managed a form of plastic alchemy by turning three of its ordinary rewards credit cards into travel rewards cards. Well, sort of. To be more accurate, it’s added the ability to transfer points from its Ultimate Rewards program to United Airlines MileagePlus accounts. The products affected are:

1. Chase Sapphire Preferred
2. Chase Ink Plus
3. Chase Ink Bold with Ultimate Rewards

You get one MileagePlus point for each Ultimate Rewards point, and the former can be redeemed on flights on United Airlines or any other members of the Star Alliance network. Chase says there are no limits to the number of points you can transfer, and claims that this is currently unique among credit card rewards programs. The card issuer’s Sean O’Reilly commented in a press release:

We are thrilled to offer our customers the exclusive opportunity to transfer Ultimate Rewards points for equal award miles with MileagePlus, the world’s leading frequent flyer program. The addition of MileagePlus to Ultimate Rewards enables our cardmembers to simply transfer points and have more travel options than ever before.

Discover Amazon’s treasures

No, Discover isn’t rewarding cardholders with trips to the Amazon river. It’s making it easier to pay for books and other goods on the Amazon website.

As of now, holders of Discover cash back credit cards, such as the Discover More Card, can use their rewards to partly or fully pay for purchases they make on Amazon with their Discover rewards, providing they first link their plastic with their Amazon.com account. If you part pay, you have to charge the balance to your Discover card.

There’s one more piece of good news for the holiday season. If you pay on Amazon using Discover cash back credit cards between now and the end of this year, you should earn double rewards.

Both Discover and Amazon commented in a press release… But no. Theirs were even more banal than Chase’s, so, as a public service, you’ll be spared them. Suffice it to say, Discover is very pleased with their new arrangement with Amazon and hopes you will be too.

Capital One recently released its July-September quarterly credit card Rewards Barometer. It’s based on a poll of more than 1,000 Americans who have rewards credit cards, and represents all rewards card holders, not just those of Capital One.

Rewards credit cards satisfaction improves

The number of respondents who ranked their rewards programs “excellent” rose across three criteria between the first and third quarters of this year:

1. Thirty-two percent said the rewards-related customer service they received from their credit card companies was excellent, up from 25 percent six months ago.
2. An even greater rise in excellence ratings (8.7 percentage points) was seen in the “flexibility of redemption options” category.
3. More consumers (up 6.3 percentage points) rated their “ability to earn rewards quickly” as excellent.

Why the change?

Capital One suggests that low consumer confidence in the economy might be behind these shifts. It quoted data from the Conference Board that showed this “recently plunging to 44.5 from 59.2 in July.”

Even more telling may be a study published last week by Sentier Research. The study found that real median annual household income has plummeted in the U.S. over the last few years. It stood at $49,909 in June 2011, down from $55,309 in December 2007.

With all that plunging and plummeting going on, it’s no real surprise that consumers are counting every cent, and valuing even more the benefits they can derive from their rewards credit cards.

Travel rewards cards could be more flexible

In general, respondents reported being happier with their rewards programs, with 23.9 percent telling Capital One’s research company in late August that they were “completely satisfied” with theirs. That was up from 21.7 percent in the first quarter.

However, those with travel rewards cards still have some major gripes. They cited two factors that prevented them from redeeming travel rewards:

1. Blackout dates (25.8 percent)
2. Can’t make last-minute bookings (22.5 percent)

These restrictions are spelled out in each card’s terms and conditions, which can vary considerably from card to card.

Rewards credit cards and redemptions

Many consumers already have plans for the rewards they’re earning. More than a quarter of those with cash back credit cards are saving at least some of theirs for shopping this holiday season, significantly more than the number who are saving for more strategic events such as retirement (13 percent) and college (5.6 percent).

Whether they have cash back credit cards or earn points, an astonishing 54.9 percent of those intending to redeem rewards for holiday gift purchases are planning to buy gift cards. At this rate, those mounds of beautifully wrapped boxes we’re used to seeing under Christmas trees could soon be replaced by neat piles of envelopes.

Is it too soon to wish you a Happy Holiday? Thought so.