@Anonymous wrote:
Yes, we may see some, many or all of the following:
1. Increased occurence of AF
2. Lowered rewards
3. Increased Merchant Fees (means increased product/service cost)
4. Increased APR's
5. Tighter credit qualifications (lower risk credit extension)
1) Not very likely. The money center banks can try it if they like. All they are likely to achieve is a mass exodus away from them. If they do it in unison they face sanctions for anticompetitive actions. AF's are a good policy to adopt if attriting accounts is a goal. (A la Citi this week.)
2) Quite possibly.
3) Not likely. Very hard to justify and won't last long if tried.
4) Once again there is a competition factor. A good policy to adopt if exposure reduction is a goal, a la Chase. In the long run this could also lead to account attrition - fewer new accounts replacing the old accounts that fall off.
5) Most likely! First of all this actually conforms with public policy goals. The Credit CARD Act of 2009 requires issuers to consider ability to repay when making credit decisions. That alone could lead to a lessening of credit. Futhermore, many issuers are driven by the need to clean up their financials to lower exposure.
I have said all along that people who are at the higher end of the credit spectrum will barely be effected. They will still be able to readily get copious amounts of unsecured credit. The major effect on the upper end will be increased APR's and decreased CL's. Both are coming anyway and at least the upper end will still have access to credit. The lower end, however, is going to find it very hard to get unsecured credit. The bar for an approval is going to be slid up, leaving many with no access. For those who can be approved ability to repay considerations are going to lower the CL's they will be approved for. Not a pretty picture.
Now if I were a CC issuer, first thing I would do is adjust the APR's while I still can do it easily, wring cash out of those who will pay up and finance charges from those who can not. Once that stabilizes and it is harder for cardholders to jump ship I would come back with a wave of CL reductions to clean up the balance sheet.
I do see a period of poorer to nonexistent intro offers coming, making it even easier to hold on to the cardholder base. And I do see holding on to the base (or at least that part of it deemed worthy of being held on to) as crucial. Nowhere in the above list of five do I see any mention of cost reductions. CCC's have tremendous marketing budgets. I see retention (perhaps even coercive retention achieved through decreased mobility) as very important and a deemphasis of marketing campaigns. You don't need intro offers to retain. You need APR promo's. APR promo's will be the "give away" starting very soon. (I personally have already received a handsome one from HSBC.)
CCC's can and will make money. They don't make money by pinching off their business totally, but they do need to manage what they have more carefully. Once they get past the challenge imposed on them by a bad economy they will be just fine. The current CC problems are mostly brought about by the poor economy making it impossible to bury a bunch of bad business decisions. The Credit CARD Act of 2009 is just an excuse and nothing more. Change was coming anyway - it's a good thing the CARD Act is in place to channel the flow.
