A just-published 2010-2011 survey by the consumer rights group Consumer Action confirms what all too many credit card users already know–today’s rates are extraordinarily high. The average variable rate was 13.20 percent in 2009, but jumped to 15.06 percent in 2010. The rise went straight to credit card companies‘ bottom lines as the Prime Rate remained steady at 3.25 percent during that period.

Consumer Action made an interesting point about how banks use credit card rates to prop up margins. The prime rate tumbled by well over a half between 2008 and 2009, from 7.25 percent to 3.25 percent. Yet the average interest charged on variable rate cards inched down over the same period by only 1 percent. Don’t expect the same sluggish response if (or, rather, when) rates start to rise.

Credit card regulation good?

As you’d expect from a consumer advocacy group, Consumer Action is broadly supportive of the last wave of credit card regulation, which was mainly based on the Credit CARD Act of 2009. It points to caps on many fees, and to restrictions that prevent card issuers from raising interest rates on existing balances except in unusual circumstances, as positive measures. Consumer Action also welcomed new levels of transparency that were imposed on credit card companies by the new law.

However, audits of the Federal Reserve’s database of credit card agreements showed that “participating issuers have done nothing to cut down on fine print and incomprehensible legalese,” Consumer Action said.

Credit card use changing

Consumer Action found three major changes in the way people use credit cards:

1. 24 percent of respondents said they now paid more than the minimum required as a result of newly required card statement disclosures that show how long it would take to achieve a zero balance when paying the least possible amount
2. 40 percent claimed credit card rates had risen
3. 60 percent of those who carried forward balances said they “significantly” reduced credit card debt last year

Fees changing

Consumer Action also looked at fees on credit cards, and found these four trends:

1. Annual fees rose slightly to an average of $65.20, but seemed to be charged on fewer products, confounding those industry lobbyists who predicted that they’d become ubiquitous after the Credit CARD Act
2. Some credit card companies appear to be eliminating over-limit fees
3. The average fee charged on balance transfer credit cards rose from 2.94 percent of the amount transferred in 2009 to 3.53 percent last year
4. Late fees have dropped widely as a result of the cap imposed by the new law

Credit card debt likely to remain a problem

Reporting on the Consumer Action survey, the New York Post forecast gloomy short-term credit card trends ahead. Though the latest unemployment data showed a drop in the overall unemployment rate, over 6.3 million Americans have been jobless for at least 27 weeks, The Post reported. These long-term unemployed people may cause card delinquency and default rates to remain high, The Post said.

On the whole, delinquency and default rates have been falling but it will be interesting to see what the Federal Reserve’s monthly “G.19–Consumer Credit” statistical release shows about 2010 holiday spending. Based on Mastercard’s fourth quarter results, The Financial Times said last week it expected “the first positive growth in US consumer credit card spending in nearly three years.” Is that a good thing? We’ll have to wait and see. But it’s certainly a reversal in recent credit card trends.

Published 02/07/11 (Modified 04/23/12)